CDB contributes to $6 billion syndicated loan for the acquisition of Baikalfinancegroup and Yuganskneftegaz (Linked to Project ID#98793)

In January 2005, the Export-Import Bank of China and China Development Bank (CDB) signed a $6 billion loan agreement with Vnesheconombank (VEB), a Russian government-owned development bank. Project ID#67166 captures CDB's contribution. Project ID#98793 captures China Eximbank's contribution VEB, in turn, on-lent the proceeds of the loan to PJSC Rosneft Oil Company (‘Rosneft’) — a Russian state-owned oil company — to repay promissory notes from the acquisition of a 100% stake in Baikalfinancegroup and the acquisition of a 76.79% stake in Yuganskneftegaz (Yukos). The CDB and China Eximbank loan carried the following borrowing terms: a 6-year maturity and an interest rate of LIBOR plus a 3% margin. The loan from Vnesheconombank to Rosneft was repayable in monthly installments, with the final installment being due in 2011. It initially carried interest at a rate of LIBOR plus a 3% margin, but in the first quarter of 2006 the interest rate was reduced to LIBOR plus a 0.7% margin. Rosneft secured this loan by entering into, and pledging its receivables under, a long-term contract for the supply of crude oil to China National United Petroleum Corporation (United) in a total amount of 48.4 million tons to be delivered from 2005 through 2010 (4 million tons in 2005 and 8.88 million tons in each of the five years thereafter) at prices determined on the basis of a formula that takes into account standard international crude oil price indicators and adjusts for quality and other factors. Payments by United under the oil supply contractt were guaranteed by United’s parent company, China National Petroleum Corporation (CNPC), and China Development Bank, and China Eximbank. The acquisitions of Baikalfinancegroup and Yuganskneftegaz (Yukos) were successfully completed, so AidData assumes that the loan from CDB and China Eximbank fully disbursed.

Additional details

1. AidData has estimated the all-in interest rate by adding 3% to average 6-month LIBOR rate in January 2005 (2.891%). 2. On December 22, 2004, Rosneft purchased for nominal consideration a 100% interest in Baikalfinancegroup LLC (“Baikalfinancegroup”), which had won an auction for the sale of 76.79% of the shares (100% of the common shares) of Yuganskneftegaz at a price of RUB 260.782 billion ($9.398 billion at the CBR exchange rate in effect as at the settlement date). The auction was conducted on December 19, 2004 by the Russian bailiff service to enforce tax liens against Yukos, which had previously controlled Yuganskneftegaz. Following Rosneft’s acquisition of Baikalfinancegroup, Rosneft issued loans to Baikalfinancegroup to enable it to repay the principal of and interest on the debt it had incurred to finance its deposit for the auction, and to purchase and pay for the shares of Yuganskneftegaz it had won in the auction. Baikalfinancegroup purchased and paid for these shares on December 31, 2004. The sources of the funds that Rosneft loaned to Baikalfinancegroup and also used to meet Yuganskneftegaz’’ immediate working capital requirements included: (1) borrowings characterized as long-term loans in the aggregate amount of USD 6,465 million (including $6 billion from China Eximbank and China Development Bank and $465 million from Sberbank); (2) short-term borrowings in the aggregate amount of $1.442 billion; and (3) funds, in the aggregate amount of approximately $1.746 billion, accumulated from the sale of Rosneft’s interests in the Prirazlomnoye and Shtokmanovskoye projects, including $1,344 billion from the sale of Rosneft’s 50% interest in CJSC Sevmorneftegaz. The borrowings characterized as long-term loans included $6 billion obtained from Vnesheconombank, initially through the issue of promissory notes by Rosneft and its subsidiaries in December 2004. The financing was intended to be, and was, put on a long-term basis in January 2005, when OJSC Vnesheconombank (“Vnesheconombank”) raised funds from China Development Bank and the Export-Import Bank of China and loaned the funds to Rosneft, which in turn used them to repay the promissory notes. 3. The individual contribution of two lenders to this $6 billion USD syndicated loan is unknown. For the time being, AidData has estimated the contribution of CDB and China Eximbank by assuming that each lender contributed an equal amount ($3 billion USD) to the syndicated loan.

Number of official sources

3

Number of total sources

6