Saudi Aramco and Petronas approach banks for long-term financing

08 August 2018
The partners are reportedly looking to convert their $8bn-loan to a long-term financing arrangement to part-fund Malaysia project

Saudi Aramco and Malaysia's state-owned Petronas have approached banks to replace a short-term $8bn loan, raised earlier this year for the joint venture (JV), with long-term financing of approximately the same size, according to a Reuters report.

The two state energy companies borrowed $8bn from a group of international banks in March for a refinery and petrochemical JV in the southern Malaysian state of Johor.

The project, Refinery and Petrochemical Integrated Development (Rapid), is a $27bn complex located between the Malacca Strait and the South China Sea, passageways for the Gulf energy producers’ oil and gas cargoes bound for China, Japan and South Korea.

The two state firms sent a request for proposals to banks last month and are now in preliminary discussions for a self-arranged loan with a maturity of more than 10 years which would replace the existing bridge borrowing, the Reuters report said.

A group of 19 banks participated in the bridge loan, including Asian lenders and BNP Paribas, HSBC, JPMorgan, Standard Chartered, Citibank, First Abu Dhabi Bank and ING Bank.

That loan, which had a 364-day tenor and an extension option of six months, offered a margin interest rate of around 40 basis points over the London interbank offered rate (Libor).

Aramco and Petronas finalised the deal to invest in the project in March, saying at the time that Aramco would supply 50 per cent of the refinery’s crude oil, with an option of increasing it to 70 per cent.

Refinery operations are set to begin in 2019, with petrochemical operations to follow between six to twelve months thereafter.

Aramco had also formed a JV with Indonesian state energy firm Pertamina in December 2016 to jointly own, upgrade and operate the Cilacap refinery, and raise its refining capacity to 400,000 barrels a day (b/d) from 348,000 b/d.

As per the JV agreement, Pertamina would hold 55 per cent of the asset, with Aramco owning the other 45 per cent.

ALSO READ: Indonesia waits for Saudi Aramco refinery approval

“Global petrochemical players tend to invest around feedstock advantages or to have access to market,” Alan Gelder, head of oil research at Wood Mackenzie, told MEED.

“Regional NOCs [national oil companies] are investing in integrated refining and petrochemicals complexes outside their domestic markets to secure a one-time offtake of their crude supplies,” he said.

ALSO READ: Regional energy majors diversify downstream

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