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Angolan oil major Sonangol has caused a stir in the syndications market by choosing Calyon as mandated lead arranger to raise around US$2bn from banks and moving away from a special purpose vehicle (SPV) structure to more of a classical pre-export finance.

An agreement was signed on September 7 and senior syndication has already closed with an amount above the intended US$2bn rumoured to be at the company’s disposal if it wishes to accept more. Banks are now discussing the timing and scope of a general syndication.

“SPVs are all smoke and mirrors anyway,” says one source. “They are cosmetic really, to give security to lenders. But direct lending to an operating company is more desirable than an SPV. It’s more transparent. The margin for the deal is also adequate for Raroc purposes. In spite of Raroc systems being in flux because of Basel II, no banks involved have particularly commented directly on this issue.”

Calyon’s chances of winning this mandate seem to have been enhanced by its advisory capacity, with Standard Chartered, for Chinese oil firm Sinopec’s investments in the Block 18 development in Angola. Sonangol is the third biggest seller of crude to China and there is a huge amount of Chinese development in the country. Unipec, Sinopec’s trading arm, is the main offtaker for this deal, while China Sonangol, the Angolan company’s marketing arm in Asia, is one of the parties involved.

Due to the dramatic increase in Angolan oil production in recent years the amount of Sonangol’s share of crude oil production that is pledged to the lenders in this facility has fallen substantially, according to the source. This has allowed financing to be based upon a long-term offtake agreement, with no additional hedging necessary – and more like a classical pre-export financing. Around 15-20% of Sonangol’s production is now pledged to the lenders, which is far less than in the past.

Funds will largely be used for upstream and middle stream developments, mainly offshore. They are not linked to any completion risk as funds are not linked to any particular project.

A portion of the funds will be used to pre-pay the Nova Vida facility of 2003. This five and a half-year US$1.225bn deal was lead arranged by BNP-Paribas (agent), SG, Banque Natexis and African Merchant Bank.

After this loan is taken out, Sonangol will have only two loans outstanding, one of which is the 2004 Esperanza six-year facility for US$2.35bn, lead arranged by a group of nine banks. The margin for this deal stood at between 312.5bp and 337bp. The latest facility is priced at 250bp over Libor – a big drop.

“Previous loans were overpriced,” says one African oil analyst. “Before, banks had Sonangol over a barrel – in spite of its impeccable repayment history.” This facility mirrors similar pricing levels for Russian oil deals, where margins have been dropping for some time. “Emerging markets premiums are reducing,” says the analyst, “and Sonangol’s credit profile has increased a lot.”

Banks have already started to talk to the Angolan firm about further funds next year to take out outstanding debt. One option would be to take an increased amount now, however.

Law firm Linklaters is advising the banks. The deal is structured with Hong Kong law owing to the nature of the offtakers.

State-owned Sonangol is in the unusual position of being far more reputable than the sovereign as a borrower. It has, however, to remain unrated, like the sovereign. “Sonangol could probably get an investment rating if it wanted but it’s not allowed,” says the oil analyst. “It has traditionally been the government’s borrowing vehicle in the past. But the government is trying to shore up its own image and should really be borrowing from development banks for infrastructure development.”