Narrative
Full Description
Project narrative
In June 2014, a syndicate of banks (including Bank of China, Deutsche Bank, BTMU, and HSBC Holdings Plc) signed a syndicated $2.4 billion oil prepayment facility agreement with a joint venture (‘orphan special purpose vehicle’) of BP Plc (‘BP’) and PJSC Rosneft Oil Company (‘Rosneft’). Lloyds Banking Group Plc was originally planning to participate in the bank syndicate, but it eventually pulled out of the deal due to concerns about Russia’s activities in Ukraine. The monetary value of Bank of China’s contribution to the syndicated is unknown. The facility had a 5-year maturity, 2-year grace period, an interest rate of 1-month LIBOR plus a 2% margin, and it was available up to 90 days from the agreement signing date. The facility was secured by the assignment of export contracts for oil products. The proceeds from the facility were to be used to finance BP’s purchase of crude oil, fuel oil, naphtha, gasoil, diesel, kerosene, gasoline or other petroleum products from Rosneft. The offtake contract was for a total of up to 12 million tons of petroleum products — that is, for up to 2.4 million metric tons a year for the five-year duration of the contract. The offtaker's payments for each cargo was made via irrevocable letters of credit. The final documentation offered provisions allowing the lenders to replace BP as the offtaker in the event the company's financial condition deteriorated to the extent that it was unable to meet its payment obligations or in the event sanctions prohibited it from performing its obligations under the offtake contract. According to the agreement, Rosneft was required to ensure that no more than 85% of the commodity exports were, at any time, subject to any security.
Staff comments
1. Rosneft is a Russian state-owned oil company. 2. Oil prepayment contracts are also known as pre-export finance (PXF) facilities. A PXF facility is an arrangement in which a commodity (e.g. oil) 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. Due to to various international sanctions imposed upon Russia, PXF facilities are one of the fews ways in which commodity producers (borrowers) can borrow in foreign currency. 3. The exact size of Bank of China’s contribution is unknown. For the time being, AidData assumes that all 4 members of the lending syndicate contributed equally ($600,000,000) to the $2.4 billion loan 4. AidData calculated the all-in interest rate as follows: 0.152% (average 1-month LIBOR rate in June 2014) + 2% (given margin) = 2.152%.