ICBC participates in $1 billion syndicated loan for Puerto La Cruz Refinery Deep Conversion Project

In July 2012, Petróleos de Venezuela, S.A. (PDVSA) awarded a $2.993 billion EPC contract to Wison Engineering Ltd., Hyundai Engineering & Construction Co. Ltd. and Hyundai Engineering Co,. Ltd. for the Puerto La Cruz Refinery Deep Conversion Project. The EPC contract specified that the China-based Wison Engineering Ltd. would receive a share equivalent to approximately $927.8 million. One month earlier, in June 2012, Credit Suisse AG and ICBC signed a $1 billion syndicated loan agreement with PDVSA Petróleo, S.A. for the Puerto La Cruz Refinery Deep Conversion Project. The loan had principal amortizations every six months and a grace period of 30 months. As of December 31, 2012, the loan had achieved an 47.8% disbursement rate ($478 million out of $1 billion). The proceeds of the loan were to be used by the borrower to finance Wison Engineering Ltd.’s share of the EPC contract that was signed in July 2012. The Puerto La Cruz Refinery Deep Conversion Project, which is located in the city of Puerto La Cruz and the state of Anzoategui, seeks to convert existing units, thereby enabling the refinery to process 210,000 barrels per day (bpd) of heavy and extra heavy crude oil from oil reserves in the Orinoco Oil Belt (FPO) instead of the 180,000 bpd of light and medium oil that it currently processes. Wison Engineering Ltd., Hyundai Engineering & Construction Co. Ltd. and Hyundai Engineering Co,. Ltd. are the general EPC contractors responsible for project implementation. Wison Engineering then subcontracted China Tiesiju Civil Engineering Group (CTCE), China Railway No.9 Group (CREC-9), China Railway Tenth Engineering Group (CREC-10) and TREVI to assist in early activities related to the site preparation works. Site preparation works for an expansion called the Deep Conversion Project began at the refinery on July 21, 2014. Module assembly commenced on March 15, 2015. Then, on November 14, 2015, a bridge was erected across the oil pipeline in the EW-02 area. The project celebrated 2 million man hours without an accident on November 16, 2015. By May 2017, the project had achieved a 79% completion rate. The commissioning of the project was originally expected to take place 2020. However, as of July 2022, AidData had not yet identified any evidence of project completion. The various stakeholders involved in this project have faced several major obstacles and controversies. In July 2014, Banco Espírito Santo — a troubled Portuguese bank — received a $835 million loan from Oak Finance Luxembourg SA (a special purpose vehicle incorporated in Luxembourg and owned by Goldman Sachs) for the Puerto La Cruz Refinery Deep Conversion Project before it was bailed out and broken up by Portugal's central bank (Bank of Portugal) in August 2014. Despite Banco Espírito Santo’s collapse, the debt was transferred to Novo Banco, a new lender (a “good bank”) that was created out of Banco Espírito Santo (the “bad bank”). The $835 million loan was supposed to be repaid. However, on December 23, 2014, Novo Banco made a surprise announcement: the Bank of Portugal had informed it that Oak Finance Luxembourg SA would remain in the “bad bank” that the central bank was winding down, virtually guaranteeing that the loan would not be be fully repaid. The reason: a Portuguese law passed in August 2014 said that anyone owning more than 2% of a bailed-out bank’s shares would have to go to the back of the line for any debt repayments. Goldman’s 2.27% shareholding in July 2014 triggered that provision retroactively, the Bank of Portugal concluded. Goldman Sachs then accused the Bank of Portugal of breaking its word and warned that the decision would hurt the pension funds that bought Oak Finance Luxembourg SA debt. Then, in August 2015, Wison Engineering Services Co Ltd was found guilty of bribery after an investigation by the Chinese government and ordered to pay a fine of RMB 30 million ($4.83 million). The firm’s controlling shareholder, Hua Bangsong, was also sentenced to 36 months in jail on the same charge (as part of a Chinese police crackdown on oil industry corruption.

Additional details

1. This project is also known as the RPLC Deep Conversion Project In Venezuela. The Chinese project title is 拉克鲁斯炼油厂场地平整项目 or 拉克鲁斯炼油厂场坪工程(惠生项目) or 委内瑞拉RPLC场平项目. 2. ICBC was reportedly the main lender in the loan syndicate. However, the precise monetary value of its contribution to $1 billion syndicated loan is unknown. For the time being, AidData assumes equal contributions ($500 million) across the two known participants in the loan syndicate. More research is needed to determine the individual contributions of each bank that participated in the syndicate. 3. Some sources indicated the PDVSA established an Irish-incorporated special purpose vehicle as the borrowing institution (in coordination with Hyundai and Credit Suisse). This issue warrants further investigation. 4. It appears that Hyundai Engineering & Construction Co. Ltd. partially financed the July 2012 EPC contract. However, this issue requires further investigation.

Number of official sources

13

Number of total sources

36