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Industries Qatar seeks to bypass the credit crunch

Qatar: Sunday, November 04 - 2007 @ 11:09

Qafco, which is 75 per cent owned by IQ and 25 per cent by Norway’s Yara International, had been eyeing a possible $1.2bn sale of bonds earlier this year to help fund the construction of its Qafco 5 plant. The facility, which is to be located at the Mesaieed Industrial City, would produce in excess of 4,000 tonnes of ammonia and more than 3,500 tonnes of urea per day.

Banks instead of bonds

But our sister publication Meed revealed in September that the increased cost of borrowing as a result of the credit crunch had made Qafco’s bonds sale option ‘too expensive’ and it recently decided to ditch the plan and IQ has now approached various banks instead.

IQ is seeking $1.6bn in bank loans and the firm is likely to invite proposals from lenders next week, according to Bloomberg. The debt is expected to consist of a $1.1bn term loan and a $500m revolving credit facility. The news agency reported that IQ hopes to tie up the loan before the end of November, while its bonds sale is still on the cards once the market becomes more attractive.

The need for IQ to secure some funding in the short term is made rather more urgent by its plan to agree a $1bn deal with Italy’s Saipem for the construction of Qafco 5’s two ammonia plants and one urea facility before the year is out. It was widely reported Siapem’s engineering unit Snamprogetti is in line for the deal alongside South Korea’s Hyundai Engineering and Construction and that there are no other bidders.

Qatar Steel has to scrap

But Qafco is not the only IQ unit that has borne the brunt of the recent turmoil in the markets as Qatar Steel has also had to sideline a major borrowing initiative. The firm was planning to take on over $1.3bn worth of debt to refinance existing borrowing and to drive forward its expansion plans.

Qatar Steel is hoping to press ahead with adding an extra 1.4 million tonnes per annum capacity at its 7 million square foot site at the Mesaieed Industrial City regardless of any financing restrictions and the company’s GM Sheikh Nasser bin Hamad Al Thani revealed to Reuters that the deal may be resurrected early in 2008 if borrowing conditions improve.

The current credit squeeze is not IQ’s only concern as its various units look to progress and grow. Escalating building costs, which have spiked right across the Gulf and have been fuelled by rising inflation rates, have created another hurdle to overcome. Just last week, a senior official at IQ’s Qatar Petrochemical Company (Qapco) told Bloomberg that its intended new plant would cost 14 per cent more than originally estimated due in part to a hike in the price of bulk materials and reactors.

Although lending is becoming harder to come by and with projected development costs rocketing, IQ is not allowing itself to be held back by its funding concerns and it was recently named as part of an Arab Gulf consortium, known as Foulth, which is teaming up with Japan’s Yamato Steel Company to develop a steel plant in Bahrain. This venture will also require a bank loan of around $1.2bn to get off the ground.

IQ is unquestionably bolstered by the fact that its units are performing very well. In the first nine months of the year, the firm achieved total sales of $1.9bn, a 19 per cent advance on the same period last year. Qafco saw its sales increase by 31 per cent while Qatar Steel enjoyed a 30.4 per cent lift. With analysts predicting continued strong sales, IQ has every incentive to persevere with its expansion plans despite wider credit uncertainties.

See also:
Rising costs fail to dent Qatar’s aluminium project
Prices rocket for Qatar’s GTL projects

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Sunday, November 4- 2007 @ 11:09 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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