Abu Dhabi National Energy Company is planning an US$800 million (Dh2.93 billion) bond sale next month to refinance a power and water plant in the emirate in a move expected to provide a template for other project finance deals in the region.
Funds raised by the bond will be used to refinance existing bank loans linked to the Shuweihat S2 power and water plant, said Stephen Kersley, the chief financial officer of Abu Dhabi National Energy Company, known as Taqa.
Shuweihat S2, a gas-fired facility with 1,500 megawatts of power capacity, began operating in late 2011.
Along with Taqa's other domestic energy projects, it helps the company to produce more than 98 per cent of the capital's power and water needs.
"We expect to get a deal to market some time in March. It could be a $800m deal," he said. "The market seems very enthusiastic to receive our paper and we expect a lot of interest as it is a landmark deal for the region."
The market for bonds linked to a particular project in the Middle East has been slow to develop. Until recently, an abundance of inexpensive long-term bank debt provided companies with the easiest means of tapping funding.
But project bonds are now emerging as an alternative funding source as banks' appetite for long-term debt has receded since the global financial crisis.
Taqa hopes the bond will also allow it to take advantage of lower interest rates. Some of the funding for the project was arranged in 2009 when borrowing costs were higher.
"We think we can get a fairer pricing but also for the emirate it's important that the success of the privatisation of the energy sector is maintained," said Mr Kersley.
"By building a project market for power it makes it easier to get financing and gives lenders the chance to commit less funds in the future."
The project bond would also represent a first for Taqa. Until now, its energy projects around the world have been funded by either conventional bonds, revolving credit facilities, project finance arrangements or bank loans.
Mr Kersley said Taqa, which is 75 per cent owned by the Abu Dhabi Government, would continue to use a range of funding sources, using bank funding and development bank funding.
"We are working very constructively with Japan Bank for International Cooperation and Korea Exim Bank and are confident we can do that again," he said.
"Local banks, particularly in Turkey, will be a help. We also have strong relationships with development banks."
Last month, the UAE signed a deal with Turkey that will involve Taqa developing coal-fired power plants across the country.
"It's a series of projects, given up to $10bn of spending," said Mr Kersley.
"It's large scale and strategic for Turkey and will require significant limited recourse debt."
Taqa plans to use project financing for a waste-to-energy project it is planning in Abu Dhabi.
"It's a very exciting project and if we can get a successful project away in our home market that will help us build other businesses around it," he said.
"It will not go ahead without project financing."
Last month it completed financing deals for projects in Morocco and Ghana.
It closed a $1.4bn project financing for the expansion of the Jorf Lasfar power plant in Morocco, the largest coal-fired power plant in the Middle East and North Africa.
It also used project financing for a $300m deal to expand the Takoradi 2 power plant in Ghana.