2 minutes with Karim Helal: How Carbon Holdings is funding its $11-billion Tahrir Complex

The project will include a naphtha cracker facility, oil derivatives production units and polyethylene units (Photo courtesy of Euromoney Egypt)

Acquiring $11 billion in funds for the establishment of a petrochemical plant in Egypt is most certainly an uphill battle. However, Carbon Holdings has done exactly that, foreseeing that it will reach financial close and start construction on its Tahrir Petrochemical Complex in the Ain Sokhna Industrial Zone by the end of 2018, managing director of corporate finance at the company Karim Helal announced at the 28th Euromoney Egypt conference earlier this month.

According to media outlet Egypt Oil and Gas, the project will include a naphtha cracker facility, oil derivatives production units and polyethylene units.

During the conference, Helal gave an account of what the funding scheme of the project looked like, the extent of its socioeconomic impact and how the so-called emerging markets crisis may or may not affect the project’s proceedings.

You do not go out addressing the market, trying to get financing that is easy or readily available

Q: What does the funding scheme behind the Tahrir Complex look like?
A: Acquiring funding [for the project] was extremely challenging, very complex and also very exciting. It has been eight years in the making until we [got to] this point, looking at financial close end of this year. You have the challenge of the size. An $11-billion project by itself is a challenge. Add to that [the location, namely Egypt] of the project – that’s another challenge. Then you add to that who is behind the project. We have overcome these challenges with flying colors.

The funding is led by the financial model of the project itself. You do not go out addressing the market, trying to get financing that is easy or readily available. You need to go out with a very clearly defined, well-studied scenario and you need to structure the financing based on the financial model, not the other way around. That dictated to us that we cannot go to commercial banks because of the long-term nature of such a project.

The debt part of the financing, which is designed on pure stand-alone project finance, has been secured by export credit agencies which is tied to our procurement. The project is funded by the export agencies of the United States (US), Canada, United Kingdom (UK) and Germany. That’s a 17-year, $5.5-billion loan arrangement with very favorable terms regarding interest and grace period.

The equity-part, which amounts to almost the same sum, is structured in different layers. You have the common equity part at the Egyptian level, which includes Carbon Holding and the Government of Egypt. The second layer is the offshore layer in the form of various types of instruments, between shares and convertible notes. This has been taken up by different pockets, like strategic investors. Now, we are at the end of the road with the last tranche of this instrument which is designed for private finance initiatives (PFIs). Due to the return, it is not a typical private equity player.

We do not go into any project unless the basic fundamentals are sound

What is the socioeconomic impact of the project?
Our boogieman in Egypt is unemployment. That is compounded by the demographics. Everybody is talking about how one of our key drivers as an investment destination is the age composition of our population, which is true. But equally, you need to find productive jobs for this growing mass of people that are coming into the job market every year. In my view, the key to solving most of our problems lies in finding productive jobs to absorb these millions.

The project creates lots of jobs during the 41-month construction phase; multiply that for indirect feeder support jobs. One layer below that, you start looking at the local component of our purchases during that phase, which is several billions that need to be produced and need to employ people. Businesses will be created on the back of the Tahrir Complex.

Once the project is completed, it will produce 10-12 different byproducts. Each of these products is the feedstock for a number of industries, if you follow the multiplier-effect. We do not have industry in this country because we do not have the intermediate material that is needed to produce pens, lighters, fishing nets and backpacks for example. Once we produce all these things, the normal evolution is for local producers to look at importers and start thinking: “Instead of importing these, I have now the raw material. I should start making it myself.” That is going to create the hundreds of thousands, if not millions of jobs on the back of all those industries. We have the raw material. It is what we call the New Egypt.

Will the so-called “emerging markets crisis” impact the Tahrir Complex project in any way?
The first basic principle that we follow quite strictly at Carbon Holdings is: We do not go into any project unless the basic fundamentals are sound. Sound means that they will not crumble at the first storm. We have to make sure that they are designed to weather all kinds of short-term changes and turbulences because in the long-run, fundamentally sound projects will weather all this.

Tahrir itself is a perfect example of an $11-billion megaproject, which is a huge project especially for the Egyptian private sector. It will completely change the investment landscape. It will turn Egypt from its current state of an assembly line into a proper industrial platform. That is why despite all the circumstances that have come along the way, we are still there; more importantly, our lenders and investors are still there. They are committed. We had a big launch in June where it was officially announced by the government as a national project. The reason it is viewed as a national project is its long-term transformational and socioeconomic impact.  

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