Issue 117 • 29 June 2007

Indies begin to tweak Angolan financing template as Sonangol continues to tap markets at lower margins

Some smaller independents are on the verge of carving out a new E&P borrowing template for Angola, while Sonangol is trying to break with its ‘government banker’ image, international bankers told Kevin Godier.

Bankers are looking beyond their traditional Angolan client Sociedade Nacional de Combustíveis de Angola (Sonangol) to structure new deals in the newest Opec member’s difficult but potentially highly lucrative markets. Senior bank executives told African Energy that a shift in focus was under way, away from the powerful parastatal – which is obtaining extremely lean borrowing margins – towards a new generation of exploration and production companies who may be coming to the market as their projects develop.

For one well-established player, Sonangol is now “a hiding to nothing in terms of the fees we can earn”. That bank’s head of oil and gas told African Energy that financiers were turning their attentions to “smaller players which are still at the appraisal stage with various Angolan shallow water fields, and will be looking for borrowing structures similar to some of those put in place for independents in Nigerian blocks”. But he added: “It is too early at present for any debt finance as the fields involved are not close to production, so we are trying to home in on the players that are the strongest credits.”

The banker stressed that independents would have a chance to borrow at relatively low pricing: “Borrowers in Africa’s oil sector have never had it so good – to the extent that if you want to play now as a bank, you might have to take a slight loss on the debt side, and make it up somewhere on the equity side.”

Local companies have already approached the market, although few details of their operations have emerged. Paris-based newsletter Africa Energy Intelligence reported that Falcon Oil (a minority partner in Blocks 6 and 15) had secured a facility from Luanda-based Banco Africano de Investimentos to pay front-end bonuses on new acreage.

This would represent a significant shift in a country where Sonangol has for years provided the sole focal point for lenders. This was most recently shown when the parastatal quietly tapped the banking market for a $500m loan.
Sonangol has been to the syndications market over 50 times, latterly evolving into a robust corporate credit able to borrow so cheaply that banks have begun to look outside of their established ‘Angolan oil model’ for new opportunities.

Despite continued concerns over governance, banks are being tempted by much improved perceptions of Angolan risk, as revenues from rising oil production – and financing from ‘alternative’ sources led by China – have transformed the country’s financial liquidity.

On the debit side, bank analysts observe that Angola remains dependent on oil, while the high prices that have prevailed in the market have allowed it to shun the kind of financial transparency that the International Monetary Fund and World Bank would prefer.

Sonangol loan

Details of the Sonangol loan remain frustratingly sparse. For many months, rumours abounded that Standard Chartered – also active in arranging Angola’s Chinese financings – had wrested the arranger position from Calyon, due to its preparedness to structure a more corporate-style loan. However, few close to the deal are prepared to speak, even after the event.

One participant in the syndication said the transaction had an eight-year tenor – it was previously reported as a ten-year deal – and that, as in previous Sonangol financings, future oil receivables formed the key security for lenders.

StanChart would say only that “we will not comment on the details of the deal beyond that information that is publicly available”. It was unwilling to comment on speculation that it would arrange another oil-backed loan in the near future.

France’s Calyon has been involved in many of Sonangol’s recent oil-backed loans, including a $1.4bn deal to finance its share of developing Block 18 alongside China Petroleum and Chemical Corporation (Sinopec). This was priced at just 40bp during construction and 140-150bp post-construction. Calyon bankers approached by African Energy declined to comment on the new Sonangol loan.

An executive at Banco Espirito Santo, one of the participants, indicated that the deal paid 1% over Libor. “The loan was made out to a subsidiary of Sonangol, in a way that cuts out its former role as a banker to the Angolan government… Sonangol is cutting out a profile for itself as a stand-alone entity.” He continued: “We are very keen to be involved with Sonangol, and are willing to accept that its banking arrangements are now looser. It may not appeal to those banks that were used to the old arrangements, but maybe the market needs to catch up.”

The banker made the oft-repeated point that Sonangol “has a huge reputation among banks after years of faultless borrowing and repayments – even in war-torn circumstances, it had the ability to command fine rates in the market.”

He added: “While the company’s financial information may not be perfect yet, it is better than before. Sonangol has become quite a powerful organisation as an oil company, investing overseas and commanding a wide range of global customers.”

Mixed ECA views

Export credit agencies (ECAs) vary in their perceptions of the market, with some buoyed up by the bullish tone of the market, while others are concerned by the government’s rejection of IMF and other conditionalities as it seeks ‘local solutions’. One of the staunchest past supporters of Angolan projects in the ECA community, the Export-Import Bank of the United States, is reticent, covering only highly structured deals or transactions under a pilot short-term insurance programme.

Germany’s Euler Hermes has provided cover under a ceiling of E150m established in 2003/04 for transactions with a credit period exceeding 360 days. “However, the ceiling is currently exhausted, [and] discussions are ongoing on how to proceed with cover capacities,” country risk assessment team member Nikolaus Roloff told African Energy: “Outside this ceiling, Euler Hermes provides cover only for project financing business, countertrade business and internationally financed projects.”

Belgium’s Office National du Ducroire (ONDD) has just resumed cover for medium- and long-term transactions with the private sector. ONDD’s ceiling for Angola is E120m, but this only applies “to highly profitable projects, which have priority for the economic development of the country and which are important for the Belgian economy”, ONDD said.

Several ECAs were concerned about Paris Club debt, the bulk of which was repaid earlier this year. According to ONDD, “the problem of the high amount of late interest owed by the Angolan state remains to be settled. The absence of a definitive agreement, which is made difficult by lack of co-operation with the IMF, justifies that the risk of non-payment and the transfer risk with the public sector remain uncovered.”

“Payment of outstanding Paris Club obligations is a very important issue,” said Atradius Dutch State Business director Johan Schrijver, who pointed out that Angolan risk had “generally improved, specifically in the oil-rich region”.

Another worry for Western financiers has been the lack of transparency and seemingly loose conditionality of cheap Chinese loans. As ever, few details emerged in mid-May when Finance Minister Jose Pedro de Morais announced that Angola was negotiating a new $2bn loan facility with The Export-Import Bank of China.

Roloff said that while newer, oil-pledged debt seemed to be repaid, “there is no reliable data on that – moreover fiscal budget execution, planning and management seem to remain difficult, and wealth distribution in the country is highly skewed."

Among the market bulls, Export Development Canada told African Energy its country risk limits had been “substantially increased recently”, although the Ottawa-based agency declined to specify the new ceiling. “There is growing interest from Canadian exporters for financing and insurance facilities – we are working on several important deals in the power and infrastructure sectors,” said EDC international business development group regional manager Rizwan Haider. “The counterparty is often the government of Angola. The private sector in Angola is still in its infancy,” he added.

In the Netherlands, Atradius has seen “high demand in construction works and dredging”, said Schrijver. The agency remains off-cover, but would be most willing to look at the oil and gas sector and construction works, as well as projects with a Ministry of Finance or Banco Nacional de Angola guarantee.