The EFRA Project financing was named the best project finance transaction in 2015 in the oil and gas sector by the high-profile EMEA Finance magazine.
On June 9th 2016, the Project Finance Award 2015 was collected by Mr Mariusz Machajewski, Vice-President of the Management Board and Chief Financial Officer of Grupa LOTOS S.A., during the award ceremony held in London. The ceremony was also attended by Mr Piotr Przyborowski, President of the Management Board of LOTOS Asfalt Sp. z o.o., representatives of the institutions financing the EFRA Project, as well as Grupa LOTOS’s and LOTOS Asfalt’s advisors involved in the transaction.
“While negotiating the EFRA Project financing with the banks, Grupa LOTOS successfully proved that the Project would ensure a high rate of return, and thus guarantee timely repayment of the future liabilities,” said Vice-President Mariusz Machajewski, and added: “With the production units to be delivered under the project, the LOTOS Group will be able to increase its annual output of high-margin petroleum products by nearly one million tonnes, while a deeper conversion of crude oil will improve the product margin per barrel of oil by around two US dollars.”
The EFRA Project financing was arranged for LOTOS Asfalt under the project finance formula, for the period until December 2024. It was provided by a bank syndicate consisting of eight financial institutions, including six banks: PEKAO S.A., Bank Gospodarstwa Krajowego, PKO BP S.A., Societe Generale S.A., BZ WBK S.A. and Bank Millennium S.A., as well as two companies of the PZU Group: PZU S.A. and PZU Życie S.A.
“I am very glad that, together with other Polish financial institutions, we can financially contribute to this project, which is unique in terms of both structure and scale. All the more so because Bank Pekao has been entrusted with the role of the coordinator, arranger and agent for this strategic project. The transaction attests to strong mutual trust among the partners, as well as the knowledge and understanding of Grupa LOTOS’ needs by the Polish banking sector,” said Andrzej Kopyrski, Vice-President of the Management Board of Bank Pekao, after the credit facility agreement was signed.
As was in the case with the 10+ Programme, the financing of the EFRA Project was arranged by the Financing Arrangement Office, led by Director Stanisław Pokojski.
“The EFRA Project is being implemented a few years after the completion of the significantly larger 10+ Programme, which has increased the production capacity of our refinery by 75%. Given the significant debt contracted to finance the 10+ Programme and the favourable terms of that financing, Grupa LOTOS S.A. resolved to finance a major part of the EFRA Project (80%) through its subsidiary LOTOS Asfalt (under the project finance formula), rather than through a transaction based on the assets and operating performance of Grupa LOTOS S.A., as was the case with the 10+ Programme,” explains Director Pokojski.
He believes that this made the structuring process for the EFRA Project much more difficult and complicated. It was necessary to work out and agree with the financial institutions an extremely complex formula and detailed structure of the Project. The main difficulty was the technological, organisational, legal and − most important for the creditors − economic and financial separation of the financing from Grupa LOTOS S.A., despite the fact that in all those aspects the Project is closely connected with the operating refinery. By drafting and agreeing on more than ten project agreements, it was possible to develop a structure where LOTOS Asfalt is defined as a self-financing, separate economic and legal entity: an SPV able to contract and then service financial liabilities significantly exceeding its current capabilities in terms of assets and funding. What is most important, this solution proved acceptable to the institutions financing the EFRA Project. In this way, Grupa LOTOS S.A. was able to avoid an alteration or refinancing of its existing debt contracted earlier in connection with the 10+ Programme, and can continue to use that financing, obtained on very attractive terms and producing measurable benefits, stressed Director Pokojski.
Pursuant to the credit facility agreements, the financing syndicate has granted LOTOS Asfalt an investment facility of USD 432m, representing 70% of the project value, and a working capital facility of PLN 300m. The balance of expenditure on the EFRA Project is financed with Grupa LOTOS’s and LOTOS Asfalt’s internally generated funds, including proceeds from the issue of Grupa LOTOS shares. Total expenditure on the EFRA Project is estimated at approximately EUR 520 million, that is almost PLN 2.3 billion.
“The organisational and efficiency improvement initiatives we have implemented allow us to believe that the EFRA Project will be completed successfully, in line with the budget and timetable, ” says Director Stanisław Pokojski with satisfaction. “Moreover, with the savings generated by effective currency conversion of a portion of funds, hedging transactions and favourable changes in foreign exchange rates, the pool of financing reserves for the Project has increased significantly.”
It is worth adding that also the financing of the 10+ Programme was recognised with prestigious awards for 2008: “Oil Deal of the Year” awarded by the Project Finance International magazine and “European Petrochemicals Deal of the Year 2008” from the Project Finance Magazine.
Communications Office, Grupa LOTOS S.A., ul. Elbląska 135, 80-718 Gdańsk, Poland, tel. (+48) 58 308 87 31, (+48) 58 308 83 88, e-mail: firstname.lastname@example.org