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Middle EastDecember 1 2004

Banks line up to underwrite gas

Qatar has attracted a record 36-strong underwriting group for its latest gas scheme, in what is being hailed as the largest project financing scheme on record, write Kevin Godier and Jon Marks.
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How much project money can one country pull in? For the small Gulf state of Qatar, the sky is the limit, judging by commercial banks’ response to the upstream component of the Qatar Liquefied Gas Company II (QatarGas II) scheme, described as the world’s largest project financing scheme. More than 40 banks responded to the sponsors’ request for mandated lead arrangers (MLAs) willing to underwrite $3.6bn in 15-year clean project risk.

A 36-strong MLA group emerged; the previous record was 24 banks for the Q-Chem petrochemicals scheme, another Qatari project.

Each of the QatarGas II MLAs – 28 of which hail from outside the Gulf Co-operation Council region – has underwritten the project at a $100m hold level. “This level of support is amazing,” says one participant. A leading project financier describes the response as “by far the strongest” he has witnessed anywhere.

Greater liquidity

The MLA group was expecting to close the deal as The Banker went to press. “The transaction will close in the early part of December,” says Michael Emery, the head of loan syndications at ABN Amro, which is acting as the international syndication bank alongside Royal Bank of Scotland and Sumitomo Mitsui Banking Corporation. They plan to syndicate the financing to a wider group of banks in early 2005, bringing in new lenders below the $100m level that will increase liquidity within the debt facility.

The QatarGas II line-up reads like a who’s who of project financiers. Other prominent MLAs include BNP Paribas (documentation agent), Citigroup (security trustee and offshore accounts bank), HSBC and Barclays Capital (export credit banks), Qatar National Bank and Gulf International Bank (regional syndication banks). In addition to regulars on the Middle East project lending circuit – such as Société Générale, Standard Chartered Bank, WestLB, Bayerische Landesbank and Bank of Tokyo-Mitsubishi – the MLAs include newcomers such as BBVA, Bank of Scotland, Bank of Ireland and Lehman Brothers.

Export credit

The financing package includes a 16-year, $1bn export credit tranche provided by the Export-Import Bank of the United States and Italy’s export credit agency, Servizi Assicurativa del Commercio Estero; and a 15-year, $480m-$530m Islamic lending package, involving a sale and leaseback structure, that will be lead arranged by Kuwait Finance House, Dubai Islamic Bank, Qatar National Bank, BNP Paribas, Gulf International Bank, HSBC and Qatar Islamic Bank.

The QatarGas II sponsors have committed up to $5.1bn, which is $1bn more than the upstream costs. The final size of each debt tranche will be decided “just before financial close”, according to Mr Emery.

The impressive flow of finance for Qatar’s gas-driven development programme has helped the state become, arguably, the most dynamic economy in the Gulf (Dubai may contest that claim), with a per capita income of $30,000. Standard Chartered estimates GDP will grow by 10% in 2004 and forecasts a rate of 6% in 2005.

It helps that Qatar is sitting on top of world-scale gas reserves in the offshore North Field. But it shares these with Iran, which, in common with other emerging hydrocarbons provinces, has been unable to mobilise anything near Qatar’s levels of project finance.

Lucrative alliances

Qatar has proved adroit at building very bankable alliances – QatarGas II is a joint venture between state-owned Qatar Petroleum and ExxonMobil – and securing markets for its gas. Its two new liquefied natural gas (LNG) production trains at Ras Laffan will ship the product to a re-gasification terminal in Milford Haven for 25 years. The Welsh plant, to come on stream in 2006-07, is being developed in recognition of the fact that new players like Qatar can step in as the UK’s North Sea reserves run down.

The banking market was able to commit $3.6bn effortlessly, exploiting its A+ credit rating. And such is the vogue for LNG-related lending that “about 60 banks want to lend to the sector”, one banker says. He told The Banker that his credit committee was impressed by the quality of the sponsors and the “very strong economics involved in taking UK gas price risk”.

Qatar has an impressive track record for speedily implementing an ever-growing number of oil, gas and petrochemical projects that feed off the North Field reserves. More will follow, including the second phase of the Ras Laffan LNG (RasGas) project.

Qatar also needs to build 57 LNG ships by 2009. The government recently selected Sumitomo Mitsui Banking Corporation as its financial consultant for a $14.5bn project to build the carriers.

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