Background
A SAR ~1bn project to occupy an area of more than 500,000 square meters and accommodate the housing requirements for over 2,000 employees working for a gas plant in the Eastern Province, Bahrain
The financing documentation had a 95% mandatory hedge ratio for the first five years.
Al Salam MSA Bahrain fund’s role was to assist the project company (the bidding consortium) on the profit rate hedging related to the project, help create a satisfactory execution script, benchmark the dry-run pricing for the required hedging and manage the market execution. Along the way we kept very close communication with the bank and every dry run pricing was broken down into its components to ensure price transparency and smooth execution.
Our approach
We first defined a hedging protocol to deliver a smooth, fair and transparent execution roadmap to all parties involved.
To enhance transparency and fair dealing, we ensured a competitive execution procedure was adhered to and that pricing reflected fair market rates and were in line with the agreed benchmarking protocol.
Due to the high sensitivity of the project’s KPIs to profit rates, we secured a certain notional deviation range and time buffer for the project company and utilized the financial model to measure the impact of market rates on the project’s targeted KPIs. Furthermore, we made sure the project company had the advantage of quantifying the market rates impact in advance, which in turn enhanced the project company ability to optimize the debt profile.
Outcome
We along with the project team coordinated a timely execution process and conducted a series of dry-runs exercises to provide transparency to the parties involved, and ensure close attention is paid to the pre-agreed hedge protocol.
We were able to eliminate any undisclosed margins and lower the hedge margins and achieving significant saving versus the initial pricing the project received, that was reached through benchmarking each of the dry-run outcomes with our internal models and market references.
We along with the project team ensured that all documentation is executed in a timely manner, hence, the project company saved time, money and resources.
