Azerbaijan is open for business with commercial banks: the $750 million, five-year loan arranged by BNP Paribas for the state-owned oil company SOCAR is the country’s largest ever syndicated deal, and the first sizable one without a state or export credit agency guarantee.
High oil prices, and the western drive to diversify away from Middle Eastern energy, will open not only banks’ doors, but also the international capital markets for Azeri corporate and state entities, say bankers.
The BNP Paribas deal closed last month shifts SOCAR’s status from poor local relation in the BP-operated Azeri-Chirag-Guneshli (ACG) offshore oil project, to equal partner.
SOCAR, which holds 10% of the ACG project, financed its capital expenditure commitments with loans to its subsidiary Azerbaijan (ACG) Ltd from other partners – subsidiaries of ExxonMobil and Turkiye Petrolleri – at Libor + 4%. These loans have been paid off with the money borrowed from the BNP Paribas syndicate, reducing the interest rates paid by Azerbaijan (ACG) Ltd to a range from Libor + 1.7% to Libor + 2%.
“The amount borrowed from the banks is fully sufficient for the project to begin to be self-financing for SOCAR,” Azeri oil minister Natig Aliyev said at the signing ceremony for the deal in Baku. “At the current high oil prices, all capital spending will be paid out in 2006-07, and only current operating expenses for the project will remain.”
The start-up of oil production in the second of the ACG project’s three phases was announced on January 5 this year. When the third phase comes on stream in 2008-09, output is expected to rise from the current level of 400,000 barrels per day (bpd), to 1 million bpd.
active role
Julian Lee, senior energy analyst at the Centre for Global Energy Studies, tells Emerging Markets: “In both Kazakhstan and Azerbaijan, the state-owned energy companies, and the ministries that stand behind them, are playing a more aggressive, active role than in the past.”
“The oil industry is beating a path to their doors, and western governments are talking about moving away from reliance on the Middle East. The Baku-Ceyhan pipeline has opened up an important export route. This has given them a sense of self-assurance that has been strengthened by high oil prices.”
Francois-Xavier Reignier, transaction manager at BNP Paribas’s commodity structured finance desk in Geneva, says: “The big oil companies were involved in the implementation of the Baku-Tbilisi-Ceyhan pipeline financing as sponsors, but this deal has been negotiated solely with the Azeris. In terms of access to syndicated loans, Kazakhstan has been, and remains, in front. But Azerbaijan is catching up.”
The deal is a hybrid of project finance, reserves-based lending and pure commodity structured finance, Reignier adds. “Construction at ACG fields is not completed, and so there is an element of construction and completion risk in the loan facility. We had to structure a deal that would enable Azerbaijan (ACG) Ltd to fund its ongoing cash calls, and would also give participating banks security from the production already underway.”
The SOCAR deal was preceded by some ECA-backed transactions for state-owned companies, including BNP Paribas’s Hermes-backed k300 million deal for the 500 MW Sumgait power station in February this year, and ABN Amro’s $180 million highway reconstruction deal in September last year.
ABN also arranged financing for four Airbus A319 aircraft being purchased by the state-owned Hava Yollary (Azerbaijan Airlines). Three of the planes, one in corporate jet configuration, were delivered last year. The deal comprises a series of 12-year loans, guaranteed by the Azeri government and supported on the producer’s side by Coface (France), the Export Credit Guarantee Department (UK) and Hermes (Germany).
looking for IDEAS
“Azerbaijan is rebuilding its economy after a long period in which there has been insufficient investment in infrastructure,” says Cecile Advani of BNP Paribas’s Europe (export finance) team, which worked on the Sumgait power station ECA transaction. “Everything from roads, water provision and hospitals, to telecoms, needs investment, and in government people are looking at new ideas and solutions. We will see much more of Azerbaijan, not only in the market for bank loans, but also in the international capital markets.”
Lending to Azeri banks has also begun. The largest reported transaction is the $56 million, 12-month loan, with a Libor + 2% interest rate, arranged by Citigroup and Commerzbank in August last year for the International Bank of Azerbaijan.