ICBC provides $1.5 billion oil-backed pre-export loan facility to PDVSA special purpose vehicle (Linked to Project ID#37915, #37918)

On February 27, 2012, PDVSA entered into a $1.5 billion ICBC oil-backed pre-export loan facility agreement with a special purpose vehicle (SPV) that is registered in the Netherlands but controlled (owned) by PDVSA. The facility (loan) carried a 3 year maturity and an unknown interest rate. The three-year term loan was backed a credit insurance policy from Sinosure and collateralized against PDVSA's future oil sales to China Oil. The loan was also secured by a collection account and a debt service reserve account (DSRA). Due to the potential scale of the excess of cash proceeds from the export over the repayment amount, the collection account was subject to highly negotiated refund mechanisms. The orphan SPV structure was put in place to accommodate PDVSA’s negative pledge commitment to other lenders.

Additional details

1. A pre-export finance (PXF) facility is an arrangement in which a commodity producer gets up-front cash from a customer in return for a promise to repay the customer with that commodity (possibly at a discount) in the future. PXF funds may be advanced by a lender or syndicate of lenders to a commodity producer to assist the company in meeting either its working capital needs (for example, to cover the purchase of raw materials and costs associated with processing, storage and transport) or its capital investment needs (for example, investment in plant and machinery and other elements of infrastructure). PXF facilities are usually secured by (1) an assignment of rights by the producer under an ‘offtake contract’ (i.e., a sale and purchase contract between the producer and a buyer of that producer of goods or commodities), and (2) a collection account charge over a bank account into which proceeds due to the producer from the buyer of the goods or commodities under the offtake contract are credited. There are two key documents in prepayment finance transactions: a contract providing for the advance payment by the offtaker to the producer for the purchase of goods/commodities (the 'Prepayment Contract'), and a loan agreement between a lender and the offtaker (the 'Offtaker Loan Agreement') under which the advance payment is financed. 2. One source (Correo Del Orinoco) indicates that a $1.5 billion ICBC loan that was issued in February 2012 was earmarked for the construction of housing in Fuerte Tiuna. However, the ICBC facility (loan) agreement for the construction of housing in Fuerte Tiuna was signed in March 2011 (as captured via Project ID#37915). For the time being, AidData treats these as two separate ICBC loans. However, this issue warrants further investigation. 3. Orphan SPVs are used in securitization transactions where the notional equity of the SPV is deliberately handed over to an unconnected third party who themselves have no control over the SPV; thus, the SPV becomes an "orphan" whose equity is controlled by no one. 4. Evidence of the provision of a Sinosure credit insurance policy can be found at https://brill.com/display/book/edcoll/9789004373792/front-9.xml

Number of official sources

2

Number of total sources

5