The Challenge
In the current challenging oil & gas price environment, Saudi Arabia continues to adapt and optimise its world leading downstream hydrocarbon industry.
A prime example is the development of the Jazan Economic City near the Red Sea which Saudi Arabia have targeted as an opportunity to invest and develop.Within large-scale oil refinery, Saudi Aramco (Saudi Arabia's state's oil company) sought to construct one of the world's largest integrated gasification combined cycle (IGCC) power plant to provide additional electricity and which would utilise the refinery's by-products.
As part of the development of the IGCC project, Saudi Aramco required the development of an Air Separation Unit (ASU) to provide industrial gases to both the refinery and the power plant. Upon completion, this unit would produce 55,000 tonnes of nitrogen and 20,000 tonnes of oxygen per day - making it one of the world's largest ASU, and one of the world's largest industrial gas project.
ACWA Holdings from Saudi Arabia and Air Products & Chemicals from USA were awarded the rights to develop, build and operate the ASU under a 20yr nitrogen and oxygen agreement with Saudi Aramco. The project cost would be in the range of $2.1bn and require debt in the range of $1.75bn, with a desire that the debt would be a flagship financing for the region by being 100% Islamic. In so doing, Acwa Holdings and Air Products & Chemicals would be part of writing the next chapter in the ongoing economic development of Jazan Econmic City, and Saudi Arabia. A project of this complexity and magnitude is testimony to the growth of Saudi Arabia national economy through strong partnerships with the private sector and contribution towards Saudi Vision 2030.
Execution
MUFG, as one of the mandated lead arrangers, played an important role in ensuring the successful completion of this complex and multi-dimensional project financing which closed on 30th June 2015.
The debt financing was achieved through two separate tranches – a US dollar tranche of US$850m provided by five international banks, and a Saudi Riyal tranche of SR3.3bn (US$ equiv 900m) provided by five Saudi Arabian banks.
Given the desire for use of Islamic debt structure, the financing was structured using a conventional istisina-ijara,wakala-ijara and murabaha in a single project finance structure, which made the transaction the world's largest 100% Islamic project financing.
One MUFG
In order to deliver for its clients, the Jazan Gas Projects financing required MUFG to use its global network.
It relied on a seamless network of MUFG's project finance team in Europe, its Islamic Finance teams in Dubai, Malaysia and Labuan to develop a funding structure which would be wholly Islamic finance compliant – a truly global team effort to support the Riyadh based client.
Results
Jazan Gas Projects was a flagship transaction for the Middle East, which has won wide recognition across the industry.
To date, it has won: Islamic Deal of Year 2016, The Banker; Project Finance Deal of the Year for Middle East, Global Finance Conferences and Industrial Deal of the Year for the Middle East & Africa, PFI 2015.
MUFG was also awarded Best Islamic Project Finance House 2016 at the highly prestigious Global Islamic Finance Awards in Indonesia, in part due to its contribution to the Jazan project.
Industry recognition aside, the completion of this transaction reflected MUFG's core values to act as a proactive and trusted partner, delivering a complex solution to meet its client needs.
