Introduction

Aluminium Bahrain (Alba), was planning to add a fifth pot line

Boost its aluminium production capacity to over 60% to more than 8,30,000 tons per year.

Proposed $1.7 billion project

External consultant named Taylor-Dejongh (TDJ) to act as the project’s financial advisor.

The consultant offered various financial options which included a structured corporate credit using
as many as five options inclusive of both project and corporate finance.

With the past experience of Pot 4, the company had plans to seek financing from multiple sources.

The company initially worried about the economic situation at that time and they feared if the
project would get tainted and hence a diminishing public sentiment.
Alba was incorporated in 1968 as JV between the Government of Bahrain, with an original ownership interest of
18% and a consortium of aluminium users.

It was the first aluminium smelter in the Middle East and it began production with two pot lines and a
production capacity to over 500,000 tons

Alba had a history of strong credit history, having operated for more than 30 years without default.

The company’s pot 4 project was huge success which added 235,000 tons of annual capacity at a cost of
$1.5 billion.

Alba over the years became the largest single-site smelters in the world but also one of the lowcost
producers.

The pot line 4 projects saw financing which included a combination of commercial bank loans and export
credits plus a small amount of Islamic finance.

It paid debt service out of revenue generated through a quota engagement with its shareholders.

Before the pot line 5 projects were to be set up, the company had to analyse the economic feasibility (Phase
1) and assess their financing options (Phase 2).
ALBA - Phase 1
TDJ carrying out the economic feasibility study
review of the project’s economic feasibility
a recommendation on the optimal organizational structure
an assessment of the market’s overall ability to finance the project.

TDJ concluded cost of $1.7billion but only if the project was combined with Alba’s
existing operations.
Project could not be financed on standalone basis without significant structural
changes to the company and therefore the project’s debt had to be paid by Alba’s total
cash flow without recourse to the sponsors.
Hence it would be classified as a project finance deal.
However Alba rejected the proposal citing the reason that the deal would be very
expensive than a structured corporate credit.
Also, it would have to undergo a major restructuring of Alba’s business model and
assets as well as a much larger equity commitment from the sponsors of $500 million or
more would be required.
 Phase 2
With the Phase 1 completed, the team proceeded toward phase two for
identifying the suitable sources of financing.
TDJ came up with eight viable sources of financing namely,
Commercial bank loans
Project Bonds( Local or International)
Islamic financial instruments
ECA financing: direct loans or guaranteed/ insured loans
Metals-linked facility: bank loan with repayment either in metal or linked to metal prices
Subordinated debt
Private Placement debt
Loans from multilateral agencies such as development banks.
Rejection of Sources

Option Reason for Rejection

International Bond Price quotes coming in from markets
were high. Also Alba would have to
have ratings from different agencies
which meant more time is required

Private Placement Spreads were too expensive

Loans from Development Banks Alba would not qualify for a
multilateral loan for pot 5 project
considering the past experiences
with the pot 4 project

Subordinated Debt Sponsors were not interested in

putting more capital into the deal.
 Phase 2
Therefore after eliminating the above stated options, TDJ
prepared a financing scenario that used up to five sources of
debt:
Commercial Bank finance
a local bond
an Islamic tranche
a metals linked facility
possibly ECA loans or loan guarantees/ insurance.
The company went into paper works with a proposed financing
from multisource financing, thus forming a strategy of creating a
competitive bidding process that would give Alba the best deal
possible.
 Source of financing Type of financing
Commercial banks loans Financing projects (covenants related to
the financial and operating performance to control project cash
flows)
Local bond Financing corporations (Dividend paid over
the firm cash flows)
Islamic loan Financing projects (project assets
ownership)
Metals-linked facility Financing corporations (transaction related
to the output)
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