Emal said to secure funds for Kizad plant expansion

Emirates Aluminium, which is building the world's biggest aluminum smelter in the United Arab Emirates, raised a US$3.4 billion loan this month to fund expansion, according to a banker familiar with the deal.

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Emirates Aluminium, known as Emal, has secured financing for the world's biggest aluminium smelter, to be built in the new Khalifa Industrial Zone in Abu Dhabi.

Emal, a joint venture between Mubadala, a strategic investment company owned by the Abu Dhabi Government, and Dubai Aluminium, raised US$3.4 billion in loans, according to Bloomberg. Of those loans, $2.93bn are conventional, while $475 million are Islamic products, a source told the newswire.

Construction of the new smelter is under way, and the $4.58bn expansion project will increase output at the Khalifa Industrial Zone Abu Dhabi (Kizad) to 1.3 million tonnes per year by 2015, from 800,000 per year.

The aluminium producer expects to raise a further $600m from export credit agencies, according to Bloomberg.

The company received bids from a group of 22 foreign and local banks for loans of $4.3bn in January. It plans to raise $1bn of bonds in the second half of the year, according to Bloomberg, most likely with a 16-year tenor and an amortizing structure.

Emal did not respond to requests for comment.

Industrial expansion is a central plank of Abu Dhabi's efforts of economic diversification, and Kizad is the epicentre of the emirate's industrial drive. The zone was officially inaugurated late last year, but Emal had already been operational at the site in Taweelah. The smelter serves as an anchor tenant, attracting downstream industries that feed off its output.

Emal will be joined in Kizad by Emirates Steel, after the state-owned steel maker opted to build its next expansion project there.

Aluminium and steel production is energy intensive, and Abu Dhabi is racing to expand its supply of natural gas to cater to industrial expansion. While Abu Dhabi National Oil Company (Adnoc) is working to increase domestic gas production, Mubadala and Abu Dhabi's International Petroleum Investment Company (Ipic) are adding to import capacity.

An offshore gas development project is planned to add to supplies this year, and next year the Shah sour gas project will help to balance supply with rapidly increasing demand. From 2015, liquefied natural gas will be imported by a Mubadala-Ipic joint venture in Fujairah.

A shortage of gas is threatening to slow the pace of industrial development. The Emirates Steel expansion, which will increase output by 1.6 million tonnes of per year, will not commence until the gas has been allocated. Once the new mill has been constructed, it will help to attract downstream industries, and contribute to the critical mass Kizad needs to become an industrial and logistics hub.

In November, Mubadala signed a bauxite supply agreement with Guinea. Bauxite is an essential ingredient in aluminium production.