CDB provides loan to Sonangol for debt refinancing purposes (Linked to Project ID#66847, #95415, #53063)

On December 9, 2015, China Development Bank (CDB) entered into a $15 billion loan agreement (captured via Project ID#66847) with the Government of Angola. The loan is an oil prepayment facility with repayments being serviced through receivables from a designated oil contract. The pricing structure of the loan allows the Government of Angola to benefit from an upside in an increase in the price of oil. The loan has a maturity of 12 years and its availability period expired on December 9, 2017. As a condition of the loan agreement, the lender required the borrower to maintain a minimum cash balance of approximately $1.5 billion in an escrow account known as the Debt Service Reserve Account (DSRA). The proceeds of the loan facility were used to be used to recapitalize Sonangol, help Sonangol prepay some of its outstanding debts to CDB, and finance a series of public investment projects. As of December 31, 2017, the loan had achieved a 100% disbursement rate. Repayments commenced in 2018. The loan’s amount outstanding was $14.9 billion in December 2018, $14.5 billion as of June 30, 2019, and $11.3 billion as of December 31, 2021. In 2016, China Development Bank approved a $10 billion subsidiary loan through this facility (captured via Project ID#53063) to enable the Government of Angola to recapitalize Sonangol — Angola’s state-owned oil company — and help Sonangol prepay some of its outstanding debts to CDB. Sonangol had previously borrowed $7.5 billion from CDB between 2010 and 2014, and through an on-lending arrangement with the Government of Angola, Sonangol used $6.9 billion of the proceeds of the $10 billion loan to prepay several outstanding debts to CDB, including a $2.5 billion loan in 2010 for the Phase 1 of Kilamba Kiaxi Housing Construction Project (captured via Project ID#47101), a $2 billion loan in 2011 to support Sonangol’s development efforts (captured via Project ID#47102), and a $1 billion loan in 2012 to support Sonangol’s development efforts (captured via Project ID#47103). According to the IMF, the $6.9 billion that was on-lent to Sonangol (as part of the $10 billion subsidiary loan) had a net value of $3.8 billion because part of it was used to refinance existing debt, implying that only $3.1 billion was used for re-financing. According to the IMF, after this recapitalization, Sonangol ‘significantly reduced its external debt, which [was] projected to decline to about US$5 billion at end-2018, from US$12.9 billion at end-2015.’ Therefore, rather than having the country’s state-owned oil company struggle to pay back CDB loans that were coming due, the Government of Angola effectively moved Sonangol’s CDB debts onto its own balance sheet. There are clear indications that the December 2015 CDB loan financially underperformed vis-a-vis the original expectations of the lender. In December 2020, CDB and the Government of Angola entered into an agreement to reprofile multiple loan agreements that they had previously signed, including the $15 billion loan agreement from December 2015 (as captured via Project ID#95415). The December 2020 agreement included (i) a three-year deferral of principal payments; and (ii) repayment of deferred principal falling due in 2020H2–2023H1 over seven years after the grace period, with some additional modest relief of principal in 2024–25. The Government of Angola also agreed to use the outstanding cash balance in an escrow account — known as the Debt Service Reserve Account (DSRA) — to make interest payments to the CDB between 2020 to 2022, which it expected would bring the DSRA balance to nearly zero by mid-2022. However, under the terms of the debt reprofiling agreement, the parties agreed that the borrower would need to replenish the DSRA to approximately $1.5 billion (the minimum cash balance previously agreed upon by the lender and borrower) by 2023.

Additional details

1. There is a discrepancy in the reported value of on-lending to Sonangol between two official sources: the IMF 2017 Article IV Staff Report and the Government of Angola’s November 2019 bond prospectus. The former suggests that the central government on-lent $6.9 million and the latter suggests that the central government on-lent $10 billion. For the time being, AidData relies on the Government of Angola’s November 2019 bond prospectus for the total amount on-lent to Sonangol and relies on the IMF’s 2017 Article IV Staff Report for the breakdown of the $10 billion. AidData assumes for the time being that the Government of Angola on-lent $10 billion to Sonangol, of which $3.1 billion was used to refinance Sonangol’s existing CDB debts. Therefore, AidData has coded the transaction (financial commitment) amount as $6.9 billion to avoid double-counting CDB loans that Sonangol previously contracted. 2. In the Chinese Loans to Africa (CLA) Database that SAIS-CARI released in July 2020 and updated in March 2021 (which is now maintained by Boston University’s Global Development Policy Center), a $10 billion loan from CDB to the Government of Angola is recorded to captured the recapitalization of Sonangol. The CLA database does not expunge the portion of the loan ($3.1 billion) that was used to refinance Sonangol’s existing CDB debts. 3. AidData Project ID#87051 captures the portion of the loan used for re-financing, though no transaction (financial commitment) amount has been recorded. 4. 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. 5. The interest rate and grace period that apply to the December 9, 2015 loan are unknown. For the time being, AidData relies on the weighted average interest rate (4.334%) and weighted average grace period (3.8333) that the World Bank's Debtor Reporting System (DRS) identifies as applying to China's official sector lending to Angola in 2015. See https://www.dropbox.com/s/949n5rctiue6d7c/IDS_Average_grace_period_and_maturity_on_new_external_debt_commitments.xlsx?dl=0 and https://www.dropbox.com/s/ab8qt4n6jijcbhd/IDS_Average%20interest%20on%20new%20external%20debt%20commitments.xlsx?dl=0

Number of official sources

6

Number of total sources

11