Bank of China contributes to a $260 million syndicated term loan facility for Khalifa Port Container Terminal 2 Project

Project narrative

In 2018, a syndicate of four banks — the Abu Dhabi Branch of Bank of China (BOC), Hong Kong Branch of DBS Bank Ltd., the UAE Branch of HSBC Bank Middle East Limited, and Abu Dhabi Commercial Bank PJSC (ADCB) — signed a $260 million syndicated senior committed term loan facility agreement with CSP Abu Dhabi Terminal L.L.C. (COSCO Shipping Ports Abu Dhabi Terminal) — a Abu Dhabi, United Arab Emirates-incorporated special purpose vehicle (SPV) that is jointly owned by COSCO SHIPPING Ports (Abu Dhabi) Limited (CSP (Abu Dhabi)), a wholly-owned subsidiary of Chinese state-owned COSCO Shipping Ports Limited, (90% ownership stake) and Government of Abu Dhabi-owned Abu Dhabi Ports Company PJSC (10% ownership stake) — for the Khalifa Port Container Terminal 2 Project. The loan facility carried a maturity of 15 years and it was structured as a long-term loan facility with a moratorium on principal repayment. HSBC Bank Middle East, ADCB, and BOC all served as onshore account banks. Abu Dhabi Commercial Bank PJSC served as the Security Agent. DBS acted as the Mandated Lead Arranger and Structuring Bank. On September 28, 2016, COSCO Shipping Ports (Abu Dhabi) Limited, a wholly owned subsidiary of COSCO Shipping Ports Limited (the project sponsor), entered into a 35-year (with an optional extension of five years) concession agreement with Abu Dhabi Ports Company PJSC to establish the joint venture for the construction and development of Container Terminal Phase II at Khalifa Port in Abu Dhabi. Khalifa Port Container Terminal 2 was the second foreign terminal where COSCO Shipping Ports held a controlling interest. The project sought to construct a container terminal at Khalifa Port. The terminal had a draft depth of 18 meters and a 1200-meter long quay wall. The first 800 meters of the quay length and its corresponding concession area were expected to begin operations in the first half of 2018, with the other 400 meters and its expanded concession area was expected to begin operations in 2020. The entire concession area, including the expansion area, spanned an area of about 70 hectares with 3 berths for a total capacity of 2.4 million twenty-foot equivalent units (TEU), adding onto Khalifa Port's existing capacity of 2.5 million TEU. The concession agreement also included an option to add another 600 meters of quay to meet future demand, allowing a growth in capacity to 3.5 million TEU. Khalifa Port was reportedly one of the fastest growing container ports prior to construction. With the construction of Khalifa Port Container Terminal 2, Khalifa Port, located along the ‘Silk Road Economic Belt and the 21st Century Maritime Silk Road’ and strategically between Abu Dhabi and Dubai in the Middle East, was expected to become the next hub port of the Middle East and West Asia. On July 10, 2017, COSCO Shipping Ports Limited signed a contract with Zhenhua Heavy Industries for the provision of 11 shore container cranes, 24 automated rail cranes, and eight container cranes for the terminal. Then, on September 26, 2017, COSCO Shipping Port signed a contract with China Harbor Engineering Corporation (CHEC) and CCCC First Navigation Engineering Bureau Co., Ltd. The contract included the laying of steel rails at the pier, services to automate the terminal, and the construction of ancillary facilities. RemCom provided cables and cable laying services under a subcontract from CHEC. SinoPro provided steel rebar, white food, film faced plywood tubes, structure steel, and couplers. The National Development and Reform Commission of China ‘initiated and coordinated’ the project as part of the Belt and Road Initiative (BRI). A groundbreaking ceremony was held on November 5, 2017. Then, on December 10, 2018, COSCO Shipping Ports inaugurated the terminal. Trial operations were scheduled to begin in April 2019 with 1.5 million TEU capacity before ramping up until official operations were to begin in the third quarter of 2019. Trial operations began, as scheduled, in April 2019. Full operations at CSP Abu Dhabi Terminal began in the fourth quarter of 2019. CSP Abu Dhabi Terminal generated $13,657,000 USD in revenue during the first half of 2020. By April 2020, CSP Abu Dhabi Terminal had handled over 540,000 and begun weekly direct service to ports in Europe and in the Indian subcontinent. After the construction of the container terminal, Khalifa Port became a subject to controversy and diplomatic intrigue between the United States and the United Arab Emirates over the construction of an alleged secret Chinese military facility. The United Arab Emirates (U.A.E.) is a close U.S. ally, hosts U.S. military forces, has pursued advanced American military technology, and has sought a bilateral security pact with the United States for its protection from Iran. Still, the U.A.E. has close economic ties with China and it has refrained from banning Huawei Technologies from its telecommunications networks. In the spring of 2021, the U.S. intelligence community concluded, based on reports and satellite imagery of the excavation of a hole and the construction of girders to accommodate a multistory building, that China was constructing a military installation at the port. The construction site was later covered up, allegedly to prevent scrutiny. Upon concluding that the site was of a military nature, the U.S. government launched a vigorous diplomatic campaign to convince the Emirati Government that the site had a military purpose and that it should cease construction. U.S. and U.A.E. officials discussed the issue several times during calendar year 2021. U.S. President Joe Biden spoke with Abu Dhabi Crown Prince Mohammed bin Zayed al Nahyan, the de facto leader of the United Arab Emirates, in May 2021 and August 2021, raising concerns over China's enlarged presence in the U.A.E. and warned of its potentially deleterious impact on U.S.-U.A.E. relations. Reported potential consequences of allowing construction to persist included scuttling the $23 billion USD sale of American F-35 fighter aircraft, Reaper drones, and advanced munitions to the U.A.E. During a September 2021 visit to Abu Dhabi, U.S. National Security Advisor Jake Sullivan and U.S. National Security Council Coordinator for the Middle East and North Africa Brett McGurk presented American intelligence findings on the site at Khalifa Port to the Emirati Government. McGurk met again with Crown Prince Mohammed bin Zayed al Nahyan in November 2021. Construction at the site halted sometime between October 2021 and November 2021, and American officials were allowed to inspect the project site. The Emirati Government reportedly was unaware of the alleged military dimension of the construction work, and the Emirati Embassy in Washington denied ever considering hosting a Chinese military facility at Khalifa Port or elsewhere in the country.