INTERVIEW

　

Talking with Deputy Director Yoshihiro Uematsu and Yuuma Kobayashi,Division 2, Corporate Finance Department, Industry Finance Group

JBIC-NEXI Facilities forSTAR Oil Refinery Project in TurkeySupporting Export of Japanese Companies toTurkey in Project Financing

JBIC signed, in May 2014, a JBIC-NEXI Facility Agreement (export loan) for a direct loan in project financing totaling up to about USD291 million with STAR RAFİNERİ ANONİM ŞİRKETİ (STAR). The loan was cofinanced with The Bank of Tokyo-Mitsubishi UFJ, Ltd. and other private financial institutions under a NEXI Facility, bringing the total Japanese cofinancing amount to about USD485 million. JBIC provided part of the funds required for designing, engineering, procurement and construction of STAR’s oil refinery plant won on a turnkey basis by a joint venture participated by ITOCHU Corporation. This is JBIC’s first direct loan in project financing for the oil refinery sector in Turkey, with the refinery plant scheduled to be completed in 2018.

Early Financing Negotiations Supporting a Successful bid for EPC ContractIn this project, STAR, which is invested by the State Oil Company of the Azerbaijan Republic (SOCAR), a national oil company of the Republic of Azerbaijan (Azerbaijan), and the Ministry of Economy and Industry of the Republic of Azerbaijan, will build and operate an oil refinery with a daily capacity of 214,000 barrels in the suburb of Izmir, and sell refined products to a Turkish petro-chemical company, namely Petkim Petrokimya Holding A.Ş., a subsidiary of SOCAR and other domestic distributors. In Turkey, the demand for refined oil products such as naphtha, jet fuel and diesel is rapidly increasing with steady economic growth. Yet their domestic production and supply has not been kept up and it relies on imports for a shortfall, which has resulted in the main cause of the trade deficit. The project is thus expected to improve the trade account and short supplies of domestic refined products. “In order to finance the project, STAR requested ECAs across the world for long-term financing and guarantee and JBIC received the request to formulate project financing, as a consortium participated by a Japanese company bidding in the plant construction. “When we look at JBIC’s track record of project financing, the framework of overseas investment loan for IPP (independent power producers) projects invested by Japanese companies has been primarily utilized. On the other hand, the track record of support in project financing for the oil refining and petrochemical sectors has still remained a small number compared to the power sector. By region, this is the first export loan in project financing offered in the Middle East and African region since the IPP project in Morocco for which a loan agreement was signed in June 2012.” Uematsu described.

Determining Loan Terms by leaching Loan Terms Agreement after Hard Negotiations

Sarulla Geothermal Power Plant Project

The project is that STAR, invested indirectly by the State Oil Company of the Azerbaijan Republic (SOCAR), a national oil company of the Republic of Azerbaijan (Azerbaijan), and the Ministry of Economy and Industry of the Republic of Azerbaijan, will build and operate an oil refinery with a daily capacity of 214,000 barrels in the suburb of Izmir, and sell refined products to a deficit local market and a Turkish petrochemical company controlled by SOCAR. JBIC signed in May 2014, a JBIC-NEXI Facility Agreement for a direct loan in project financing totaling up to about USD291 million (JBIC portion) with STAR, upon a joint venture participated by ITOCHU Corporation receiving a collective order. The loan is cofinanced with The Bank of Tokyo-Mitsubishi UFJ, Ltd. (lead arranger), ING Bank N.V., Tokyo Branch, Crédit Agricole Corporate and Investment Bank, Tokyo Branch, and BNP Paribas, Tokyo Branch, which brings the total cofinancing amount to about USD485 million, with Nippon Export and Investment Insurance (NEXI) providing insurance on the cofinanced portion. Also, as this is an international cofinancing project, it’s joined by Compañía Española de Seguros de Crédito a la Exportación (CESCE), Export Development Canada (EDC), Export-Import Bank of the United States (EXIM), Korea Trade Insurance Corporation (K-SURE) and Servizi Assicurativi del Commercio (SACE) of Italy.

Further Supporting Japanese Companies in Oil Refining and Petrochemical Sectors

After winning the order, the negotiations toward closing the final agreement continued over a year. “For a large-scale project financing with ECAs participating in the oil refining and petrochemical sectors in the Middle East, term sheet negotiations usually took place among ECAs, sponsors and project proponents, and then joined by private financial institutions at the stage of documenting a loan agreement after agreeing on the term sheet. The same approach was followed in the STAR transaction, with the full information package launched to the commercial banks only after the term sheet was agreed with the ECAs. The same applied to the finance documents which was provided to the commercial banks after initial review and comments were provided by the ECAs and finally they were finalized on May 2014” Uematsu explained. Through these efforts, the loan agreement was formally signed in May 2014. “As there are many players in this project, future project management is important for whether construction is completed as planned, and sustainable project management with structural improvements to make the complete pay-off of the loan possible. I think SOCAR and STAR gained considerable confidence by succeeding in composing the project financing through promoting the participation of ECAs across the world by themselves. In the oil refining and petrochemical sectors, Korean companies have track records of receiving orders with strong price competitiveness, but I believe JBIC will be able to contribute to increasing the chance of winning orders by Japanese companies, which will lead to subsequent project formations, through strengthening our partnership with SOCAR.” Uematsu continued. Kobayashi, now in the Transportation and Telecommunication Finance Department, Infrastructure and Environment Finance Group, also added that “I would like to contribute to the maintenance and strengthening of the international competitiveness and creation of export opportunities of Japanese companies, by utilizing this experience and focusing on investment and export support of infrastructure projects.”

In this project, a request for export project financing came from STAR in 2010. Even if Azerbaijan’s national oil company SOCAR was STAR’s sponsor, there were concerns over participation by private financial institutions because this is Turkey’s first export finance project in the oil refining sector and the financial situation was dire due to the Lehman shock. JBIC had been contributing to smooth financial structuring by participating in the early stages of projects with other ECAs with a resort to its abundant experience and knowhow on project financing. “To support the consortium where a Japanese company participates for winning the bid, we vigorously conducted negotiations with SOCAR, which demanded very strict conditions. As a result, we had challenging negotiations on the term sheet.” reflected Kobayashi, then in charge of the project. As hard negotiations continued, a consortium participated by ITOCHU Corporation successfully won the order of design, procurement and construction of the plant as a whole in December 2012, and the negotiations on the term sheet moved forward positively.

Export Project Financing for Oil Refining Project inTurkey

Deputy Director Uematsu

Kobayashi