Case study presentation by Bruno Gremez and Samir Kasmi of CT&F and by Deutsche Bank on raising capital for a greenfield gas-fired power plant project in Iraqi Kurdistan developed by privately-owned group Qaiwan.
1. How to attract ECA and project financing to
frontier MENA markets: Qaiwan Case Study
2. • The Qaiwan Group was established in the
1990’s as a privately owned company in
Sulaymaniyah, Kurdistan Region of Iraq.
The Group’s first line of business was in
the general trading activities.
• Over the past 20 years the group has
witnessed remarkable growth to expand
into other sectors: Oil & Gas, Power and
Energy, Real Estate, Hospitality, Electronics
and Transportation.
History of the Group
Qaiwan Group Holding (QGH)
Retail Real Estate
Sector
Power
Genera:on
Transporta:on
Sector
Downstream
Oil & Gas
Group Establishment
Open Branch
in Dubai
2004 2007
2008
2008
2013
Bazian
Refinery Phase 2
commissioned
SKY Hotel
& Slemani Mall
Qaiwan City
Phase 1
Complete
2005
First Real Estate
Project
Commenced
Qaiwan City
Commenced
Oil Trading
Company
Commenced
Bazian Refinery
Agreement & Phase 1
commissioning
Qaiwan Global
Energy DMCC
Incorporated
Partnership
with Hitachi
Start
Rotana Hotel
Bazian
Refinery
Phase 2
complete
Establishment
of Oil Trading
entity
Sign PPA for 750
MW Combined
Cycle Power
Plant
2003
2009
2011 2016
20031993 2012
2013
Bazian
Power Plant
Simple Cycle
Commissioned
2012
2014
3. Bezhan Power Plant Key Highlights
§ 750MW Combined Cycle Plant, comprising 500 MW of Simple Cycle Gas Turbines commissioned in Q4
2016 and 250 MW Steam Turbine currently under development.
§ The off take for the produced power will be the Kurdistan Regional Government (KRG), Ministry of
Electricity (MoE).
§ Qaiwan has developed, designed, constructed and will operate the Plant for the duration of the PPA and is
responsible for inclusion of up to 20km gas pipeline, overhead lines and interconnections.
§ The plant will primarily utilize Gas fuel and Light Fuel Oil (diesel) as a back up fuel.
§ PPA with MoE is for 15 years from Commercial Operation Date of Steam Turbine, ensuring 16 years of
revenue since Gas Turbines will be commissioned 1 year earlier.
§ Debt finance of $105 million disbursed in February 2016, comprising $75 million COFACE supported ECA
loan with Deutsche Bank and Bankmed as MLA’s. GE also arranged a $30 million commercial loan which
was disbursed in Q4 2015.
4. Case study: raising LT financing in Iraq:
complexities (1)
§ In 2013, Qaiwan worked on the development of a 750 MW combined cycle gas-fired power plant in the
Kurdistan Region of Iraq;
§ It resulted in a long-term Power Purchase Agreement (PPA) signed with the Kurdistan Regional
Government in November 2013;
§ In the second quarter of 2014, CT&F was officially mandated by Qaiwan to structure and raise long-term
financing for the project;
§ Raising financing supposed to cope with a number of complexities related to Iraq, the Kurdistan Region of
Iraq and the project;
5. Case study: raising LT financing in Iraq:
complexities (2)
ü Scarcity of financing: CT&F and Qaiwan quickly concluded that local bank financing in Iraq was not
available, that Gulf-based or international banks had a very limited risk appetite for any project in Iraq,
and that one of the most attractive sources of funding would consist of leveraging the supply
contracts with turbine manufacturers to obtain support from their respective Export Credit Agencies
(ECAs) in France, Italy or Switzerland to structure long-term financing for the gas turbines;
ü Very restrictive official policies from ECAs towards countries like Iraq: Official credit policies of
ECAs on Iraq (no official policy for Iraqi Kurdistan) consisted of only approving loans to local
corporates backed by a sovereign Iraqi guarantee or an acceptable state-owned Iraqi bank
guarantee; any such guarantee would be impossible to obtain for a group active in the Kurdistan
Region of Iraq for obvious political reasons;
ü Intense time pressure: the PPA was already signed and imposed on Qaiwan very strict deadlines in
terms of project completion; in order to meet these deadlines, Qaiwan had to make a final selection of
the EPC contractor and of the gas turbine supplier in order to start construction; Qaiwan was in
discussion with two potential EPC contractors from Turkey and with three turbine suppliers: Ansaldo
(Italy), General Electric (France) and Alstom (Switzerland);
6. Case study: raising LT financing in Iraq:
innovative approach (1)
§ After a detailed analysis of Qaiwan’s financial performance over the 3 previous years, CT&F concluded
that Qaiwan, thanks to its sound balance sheet structure and profitable business, could be eligible for
senior unsecured financing (i.e. balance sheet lending, without collateral and / or external guarantee);
§ CT&F and Qaiwan, based on such conclusion, decided to approach and visit each relevant ECA (SACE in
Italy, SERV in Switzerland, COFACE in France) with a detailed presentation of the sponsor Qaiwan, the
power plant project, to request for the proposed financing structure;
§ Over a number of weeks, CT&F and Qaiwan conducted extensive discussions with each ECA (and their
respective Ministries of Finance) in order to convince them, based on factual and financial arguments, that
Qaiwan should be eligible for senior unsecured financing;
§ Furthermore, due to the above-mentioned time constraints, CT&F insisted that each ECA would have to
approve the principle of a “refinancing”, i.e. instead of disbursing the loan by effecting payments to the
selected turbine supplier, ECAs would approve that Qaiwan would move ahead with the project before the
loan would be available, and that the loan, once in place, would be used to refinance payments already
made by Qaiwan to the selected turbine supplier, which is rather unusual for ECA financing;
7. Case study: raising LT financing in Iraq:
innovative approach (2)
§ Over the summer of 2014, CT&F managed to obtain letters of support from all three ECAs confirming their
acceptance of the senior unsecured approach and of the refinancing principle;
§ After obtaining such letters of support, Qaiwan was able to finalise negotiations and select the EPC
contractor and the gas turbine supplier;
§ During such negotiations, CT&F and Qaiwan also started discussions with the gas turbine supplier about
additional supplier financing on the same senior unsecured basis as accepted by the ECAs; these
discussions resulted in a term sheet signed with GE for a USD 30 million senior unsecured vendor loan,
that would fund Qaiwan’s project in addition to a COFACE-supported financing for the gas turbines;
§ On that basis, in August 2014 Qaiwan signed the EPC contract with ENKA, Turkey, and the gas turbine
supply contract with GE, France;
§ CT&F and Qaiwan, based on the letter of support of COFACE and the signed term sheet with GE, started
to approach in parallel a number of international banks with an invitation to arrange the COFACE-
supported loan and selected Deutsche Bank as lead arranger towards the end of 2014; they then worked
on the implementation of both financings and on the completion of all conditions required by all parties
involved, including environmental, social, credit and compliance requirements;
8. Case study:
challenges and risk mitigations identified
§ French Erbil consulate under the French Ministry of Foreign Affairs, US embassy in Bagdad and US
consulate in Erbil were all instrumental during the whole process with consistent and constructive
approaches towards the project, visiting Qaiwan’s management, supporting GE’s bid and helping by
renewing three times the Coface promise of cover on a challenging country like Iraq;
§ Large support and help from Multilateral Financial Institutions : IMF through the SBA agreed $5.5bn over
next 5 years to Iraq – $2.7bn loan supported by US congress – IFC etc…;
§ Statement from German foreign minister, Steinmeier on KRG : September 2014
“We in Europe and Germany cannot remain indifferent to these developments. The collapse of the Kurdish
lines of defence, or even the collapse of the Iraqi state, a military conflagration throughout the Middle East:
all this may happen if the international community does nothing to prevent precisely that”;
§ Know Your Customer process during the enhanced due diligence: location of the refinery near Iran border,
bidding procurement process according to KRG and Iraq law etc…;
9. Case study:
Environmental and Social Impact Assessment
§ Full environmental assessment study from the initial report to gap analysis by appointing an independent
consultant (2U1K);
§ Project seen as a benchmark / pioneer that be replicated for other financings on frontier markets similar to
Iraqi Kurdistan;
§ Pragmatism and solution-oriented approach for issues identified, i.e. associated facilities for gas and water
pipes to be constructed according to international standards even if their ownership is in the hands of an
external party (KRG);
§ ESAP during construction and operation phases – close monitoring during the lifetime of the credit facility;
10. Case study: raising LT financing in Iraq:
additional complexities
§ In the course of 2015, meeting the requirements of lenders became increasingly complicated by the very
challenging environment prevailing at the time:
ü The invasion of a great part of Iraq territory by ISIS in summer 2014;
ü The start of the military action between the Kurdish army and ISIS that is still ongoing as of today;
ü An oil exports related dispute between the Kurdish Regional Government and the central government
in Baghdad that has been smoothened since;
ü A sharp fall in oil prices towards the end of 2014 that has put great pressure on the region’s financial
situation over the last 2 years;
§ After several credit reviews and numerous Q&A sessions with lenders caused by the difficult security,
political and economic situation of the Kurdistan Region of Iraq, CT&F and Qaiwan managed at the
beginning of 2016 to close and disburse the following long-term financing for a combined amount of USD
105 million:
ü A USD 75 million buyer credit supported by COFACE and arranged by Deutsche Bank, with Bankmed
as co-arranger, on a senior unsecured basis for a tenor of 8 years after delivery of the gas turbines;
ü A USD 30 million vendor loan granted by GE on a senior unsecured basis for a tenor of 5 years after
delivery of the gas turbines;
11. Case study: raising LT financing in Iraq:
conclusions
§ This financing was a truly landmark deal in the Kurdistan Region of Iraq for the following reasons:
ü It is the first COFACE-supported loan in Iraqi Kurdistan;
ü It is the first GE vendor financing in Iraqi Kurdistan;
ü It is the first corporate debt for Qaiwan;
ü It is the first senior unsecured loan obtained by a local corporate in Iraqi Kurdistan;
ü The financing package enabled Qaiwan to start the construction of the power plant before obtaining
the financing, and refinanced Qaiwan while the power plant was reaching completion at the beginning
of 2016;
§ For these reasons, the USD 75 million buyer’s credit arranged by Deutsche Bank with the support of
Coface was awarded Deal of the Year by TFR;
§ The financing was closed in a very challenging environment and demonstrates that factual and financial
arguments combined with persistence can lead to very attractive results for corporates that:
ü Can show strong and consistent financial performance;
ü Have solid industrial projects;
ü Invest some time and resources in order to develop projects according to international standards in
order to meet requirements of international financial markets.