Related News

UK firms pursue supply chain transparency amid regulatory pressures: Santander

US court upholds forced labour embargo against Ninestar

Kazakh bank hits snag in fraud suit against commodity traders

Dollar alternatives not a major illicit finance threat, US says

Oil trading scheme netted vast sums for Iran’s Revolutionary Guard: US prosecutors

Sinosure’s biggest yet

The largest ever transaction involving Sinosure cover closed last year. It is also the largest ever oil and gas bank financing in the Republic of Kazakhstan.

In August 2005 China National Petroleum Corporation (CNPC), one of the world’s largest oil companies and China’s largest producer and supplier of crude oil and natural gas, acquired Petrokazakhstan (PKI), incorporated in Canada, for US$4.2bn via its 100%-owned subsidiary CNPC International.

At the time the transaction was the largest overseas takeover by a Chinese company and is just one example of China’s state-owned enterprises looking to expand overseas.  PKI is the third largest oil producer in Kazakhstan and as of early 2006 had total proved and probable reserves of approximately 462mn barrels of oil.

Due to the subsoil law in Kazahkstan, the Kazakh government has the right to retain some control over the countries mineral resources.  As a result and to satisfy this law CNPC subsequently sold a 33% interest in PKI to JSC National Company KazMunaiGaz (KMG) a Kazakh state-owned oil company which was appointed to represent the state’s commercial interests.

The Commonwealth Bank of Australia and Standard Chartered Bank designed the overall financing structure for the transaction. To finance the acquisition of a 33% interest in PKI and associated transaction costs, a subsidiary of KMG issued 10-year floating rate notes to the value of US$1.375bn.

These notes were purchased by the China Oil & Gas Fund (COGF) via a short-term bridge financing that was arranged by Commonwealth Bank of Australia and Standard Chartered.

Subsequent to this, Commonwealth Bank and Standard Chartered led negotiations with COGF to refinance the short-term bridge facility. This resulted in a 10-year US$1.447bn financing which included two tranches of debt, Tranche A – a US$1.013bn term loan and Tranche B – a U$434mn floating rate note (FRN) issue.

Two additional banks, Calyon and ING, were also introduced to create a four-bank group that jointly arranged, underwrote and pre-funded the term loan. The Tranche B, FRN issue was managed by Standard Chartered and was fully subscribed in a private placement.

Both Tranches A and B have the benefit of an investment insurance policy provided by China Export and Credit Insurance Corporation (Sinosure). Sinosure provided political risk and performance risk coverage in favour of the finance parties.

However, the primary source of repayment for the long-term financing is the dividends from KMG’s 33% interest in PKI, the majority of which is derived from sales of oil (around 95%) and natural gas.

“Syndication of the transaction has been extremely successful with the deal three-to-four times oversubscribed, which indicates the current strength of the syndicated loan market and in particular recognition of the importance of such deals to China in its efforts to manage the ‘security of supply’s of commodities such as oil and gas for an increasingly energy hungry economy,” says Brett Ardern, executive manager, Natural Resource Solutions, at Commonwealth.

Deal information:

Borrower: China Oil & Gas Fund (CGOF)
Amount: US$1bn
Mandated lead arrangers and bookrunners: Calyon; Commonwealth Bank of Australia; ING Bank (Sinosure agent); Standard Chartered (facility agent)
ECA: Sinosure
Tenor: 10 years
Law firms: Linklaters (lenders)
Date signed: October 2006