Chinese greenfield pioneer
The US$1.4bn facility arranged for Sonangol Sinopec International (SSI) last May was the first greenfield limited recourse financing to ever be arranged in Angola. Furthermore, it is the first international project financing to be led by a major Chinese sponsor, and the first international project deal with both Chinese and international banks participating as co-lenders.
The seven-year, US$1.4bn facility is to finance the acquisition and development of Block 18, one of the largest oilfields in Angola, in the Congo Basin, which is 50% owned by SSI and 50% by BP.
When participating with Chinese banks in the past, mandated lead arrangers (MLAs) have tended to structure multi-tranche facilities, with several inter-creditor agreements. Having arranged a single tranche facility in this instance, the MLAs have broken into new territory, making life much easier for the sponsors.
During the construction phase the facility pays 40 basis points over Libor, for the following three years it pays 140bp, and thereafter it pays 150bp, until final maturity in June 2013.
In order to help obtain the competitive pricing and long tenor, China Petroleum Corporation (Sinopec) – which has a 55% hold in the SSI joint venture – delivered a comprehensive pre-completion guarantee package to lenders. Banks also benefit from the assignment of the proceeds from export contracts signed with Unipec as offtaker and a share pledge over SSI itself.
Unipec is the largest crude oil trader in China, accounting for more than 60% of China’s crude imports in 2004. It is wholly-owned by China Petroleum & Chemical Corporation, a listed arm of Sinopec.
In addition to co-advisors Calyon and Standard Chartered, the mandated lead arrangers were BNP Paribas (technical and modelling agent), ING (joint documentation and facility agent), China Development Bank and Export-Import Bank of China (joint documentation agents), Bank of China (accounts), China Construction Bank, Agricultural Bank of China, BayernLB, KBC, Natixis (security agent), and Société Générale.
China is diversifying its imports of oil, which have tripled in the last five years. Once production starts, Block 18 is expected to produce around 200,000 barrels a day, and much of it is intended for export to China. This investment now cements Angola’s place as the largest supplier of oil to China.
The SSI deal marks the first Angolan oil project finance since the Cabinda facilities of the early 1990s. The Cabinda structure was used to finance Sonangol projects. This structure made use of the proceeds of crude oil produced in the Cabinda concession area. The proceeds of the crude oil shipments were received in the Cabinda Trust managed by Lloyds Bank in London. Proceeds of every first four of 16 quarterly crude oil shipments were used to repay the loans granted under the Cabinda Trust arrangements.
“The Cabinda Trust structure has not been used anymore, since Sonangol raises finance by means of an oil prepayment structure, without use of a trust,” claims a spokesman at ING, one of the MLAs. “The current SSI transaction is a project finance for Sinopec’s share of the Block 18 oilfield, after completion relying on the proceeds from the oilfield and before completion relying on the guarantee from sponsor Sinopec.”
Borrower: Sonangol Sinopec International (SSI)
Mandated lead arrangers: Agricultural Bank of China; Bank of China; BayernLB; BNP Paribas; Calyon; China Construction Bank; China Development Bank; Export-Import Bank of China; ING; KBC; Natixis; Société Générale; Standard Chartered
Tenor: 7.25 years
Margin: 40bp over Libor during construction; 140bp for the following three years; 150bp thereafter
Law firms: Norton Rose (lenders); Jones Day (sponsors)
Date signed: May 2006