Financing petrochemical projects in China — a sponsor's perspective

Although the nature and function of petrochemical processes and products is often a very unfamiliar subject to the average person working outside the chemicals industry, petrochemicals and the end-products that they make possible are an integral part of modern life. Petrochemicals (which are quite simply chemicals derived from petroleum or natural gas) are critical components of the plastics we use in our home and office, the advanced fibres in the clothes that we wear, and the pharmaceuticals that treat our ailments.

China, due in no small part to heavy demand from its massive manufacturing and textiles sectors, is home to the world’s largest and fastest-growing petrochemicals market. In the last decade, China’s demand for basic petrochemicals and the most commonly used plastics have tripled. The Chinese government has also been paying attention, liberalising rules and policies to encourage the high level of participation from multinational energy and chemicals companies to continue.

The industry is highly capital-intensive as petrochemical facilities often cost hundreds of millions or even billions of US dollars to build and operate. Thus, financing from domestic and international financial institutions are commonplace. Depending on the nature of the project, creditworthiness of the project sponsors and perceived risks to the lenders, such financing may be as simple as a bilateral working capital facility used as a cash flow contingency or as complex as a full scale syndicated project financing involving nearly all of the major domestic Chinese banks and several international lenders…

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