The Star
11th September, 2019

PETALING JAYA: Petroliam Nasional Bhd (Petronas) and joint venture (JV) partner Saudi Aramco are seeking commitments from banks for a US$9.7bil (RM40bil), 15-year loan to finance the Refinery and Petrochemical Integrated Development (Rapid) project in Johor.

Citing LPC, a fixed income news service, Reuters reported yesterday that banks have responded to an initial request for proposals and are required to respond by the end of this week with revised proposals, mainly around pricing.

The news wire said the new borrowing comprised three tranches: an export credit agency (ECA) facility, an ECA-covered portion and an uncovered commercial piece of around US$3.08bil (RM13bil).

“ECAs from Japan, South Korean and Europe are expected to be involved,” Reuters said. It added that the uncovered commercial tranche would carry different interest margins tied to completion of the project.

“The pre-completion period is expected to be two years, during which Petronas and Saudi Aramco will provide guarantees, and the all-in pricing is likely to be around 80 basis points (bps) over the London Interbank Offered Rate.”

After the project is completed, guarantees fall away and the pricing will increase to around 150 bps.

“A US$8bil (RM33bil), 364-day bridge loan which Rapid completed in March paid similar all-in pricing based on an initial razor-thin interest margin of 40 bps over Libor and fees. The bridge attracted 19 banks.

“Refinery operations are set to begin in 2019, with petrochemical operations to follow six to 12 months later,” said Reuters.

Petronas and Saudi Aramco, the national oil company of Saudi Arabia, have equal stakes in the half-built, U$27bil (RM111bil) complex located at the Pengerang Integrated Complex (PIC) in Johor.

With an investment of US$27bil, PIC supports the government’s overall Economic Transformation Programme and puts Malaysia in a strategic position to capitalise on the growing need for energy and commodity petrochemical products in Asia for the next 20 years.

In March, Petronas and Saudi Aramco formed two JVs for the Rapid project, which would allow the parties equal ownership and participation in the operations of the refinery, cracker and selected petrochemical facilities in the project.

The collaboration will see Saudi Aramco supplying 50% of the refinery’s crude feedstock requirements with the option of increasing to 70%. Meanwhile, natural gas, power and other utilities will be supplied by Petronas and its affiliates.

Last year, Saudi Aramco inked a deal to invest US$7bil (RM29bil) in Rapid. It later bought a US$900mil (RM3.7bil) stake in petrochemical projects in the Rapid complex.

For the Saudi Arabian company, the deal is part of its long-standing strategy of investing in refining to help lock in demand for its crude.

Globally, Saudi Aramco is also looking to defend its status as the world’s biggest exporter and fend off rivals in Asia, which is the biggest market for its crude.

The refinery, which has a capacity of 300,000 barrels of crude per day, will produce a range of refined petroleum products, including gasoline and diesel, which meets the Euro 5 fuel specifications.

The PIC project, which is presently more than 80% completed, is on track for refinery start-up in the first quarter of next year.

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