Published July 11, 2009

Sembcorp-led group in bank loan talks

It's closing financing for a US$1b water & power project in Oman

By RONNIE LIM

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A GROUP led by Sembcorp Industries is talking to banks about closing the financing for the US$1 billion-plus Salalah independent water and power project (IWPP) in Oman. The development is significant as it suggests that the group is likely to complete the deal to build, own and operate the IWPP by year-end. It also runs counter to earlier reports that suggested that Oman would call for re-bids on the project.

The funding talks with banks run counter to earlier reports that suggested that Oman would call for re-bids on the project.

In fact, the Sembcorp-led group - designated 'preferred bidder' in January - is understood to have signed a letter with the Omanis earlier this week that essentially guarantees that they would not engage any other party during a 'standstill' period.

Sembcorp's partner for the project is Oman Investment Corp, a private equity company whose shareholders include Gulf Investment Corporation (50 per cent), the Oman government (10 per cent), National Investment Funds Company (35 per cent) and BankMuscat (5 per cent).

Earlier reports that the Omanis would call for fresh bids by the three consortiums short-listed for the IWPP came after news that the Sembcorp-led group had to review its project costings due to the global credit crunch, and was seeking to increase tariffs because finance would be dearer.

After meeting the group, the Oman Power and Water Procurement Company is understood to have appreciated the difficulties it faced - higher interest charges and banks constrained in long-term lending.

The Omanis want early completion of the Salalah IWPP, which comprises a 400-megawatt (MW) power station and a desalination plant to produce 15 million gallons of water a day.

Demand for resources in the sultanate is growing fast. For instance, considerable additional desalination capacity will be needed by 2015 just for the city of Muscat and surrounding regions.

The Sembcorp-led group is meeting banks that are said to include Standard Chartered - which had lined up an underwriting agreement for US$800 million that subsequently expired due to delays with the IWPP - China Exim Bank, a Singapore bank and several Gulf banks.

The group is said to be looking to borrow 70-85 per cent of the cost of the Salalah project.

If finalised, the IWPP will be Sembcorp's second such Gulf project, after the US$1.7 billion Fujairah I IWPP in the United Arab Emirates.

Last month, Sembcorp completed a US$190 million expansion there, raising power generation capacity to 760 MW. The Fujairah IWPP also has one of the world's largest desalination plants, with a capacity of 100 million gallons a day.