Two Chinese oil giants Cnooc Ltd. (CEO) and China Petrochemical Corp., known as Sinopec Group, are seeking bank loans of around US$4.5 billion from the Hong Kong market to fund their announced overseas acquisitions, turning to the offshore loan market amid tightening liquidity at home, people familiar with the situation said Thursday.
Two Chinese oil giants Cnooc Ltd. (CEO) and China Petrochemical Corp.,
known as Sinopec Group, are seeking bank loans of around US$4.5 billion from
the Hong Kong market to fund their announced overseas acquisitions, turning to
the offshore loan market amid tightening liquidity at home, people familiar
with the situation said Thursday.
Chinese state-owned oil companies have been considered as cash-rich when making
landmark overseas acquisitions due to their access to financing from
China
's
domestic banks.
However, credit control measures introduced by the central government earlier
this year as
China
moves
to tighten liquidity, and cheaper funding costs in
Hong
Kong
are driving Chinese companies to the
Hong
Kong
loan market.
"The funding cost for U.S. dollar loans for a top credit client is now in
between 80-150 basis points in Hong Kong, while Chinese banks now ask for at
least 300 basis points for U.S. dollar onshore loans in China," one of the
people said.
Cnooc, China's largest offshore oil and gas producer by capacity, is sounding
out banks in Hong Kong for loans of up to US$1.5 billion to fund the recent
takeover of Pan American Energy LLC by its joint venture Bridas Corp., two
people familiar with the situation said.
Cnooc said last month that Bridas Corp., a 50-50 joint venture between the
Beijing-based oil company's international arm and Bridas Energy Holdings,
agreed to buy the 60% stake in Pan American Energy that it doesn't already own
from BP PLC for US$7.06 billion to take full ownership of Pan American and
bolster its presence in
South America
.
Separately,
Asia
's biggest refiner Sinopec
Group is now looking for an offshore long-term loan of at least US$3 billion to
refinance short-term debt, one of these people said.
Sinopec Group got around US$4 billion in short-term bilateral loans from a
couple of international banks for its US$4.65-billion acquisition of a stake in
the Syncrude Canada Ltd. oil sands project in June, the person said.
The two companies are in talks with Chinese, Japanese and some European banks,
the people said without elaborating. Cnooc and Sinopec Group declined to
comment.
Mounting speculation that the yuan will appreciate further has also contributed
to tightened onshore U.S. dollar liquidity in
China
.
"Individuals and companies don't want to keep U.S. dollar deposits and
would like to convert them into yuan, and at the same time, they would like to
obtain U.S. dollar loans, leading to the scarcity of the U.S. dollar in the
market," another person familiar with the situation said.
"It's a test to the appetite of the Hong Kong loan market as state-owned
companies normally ask for low interest margin without pledging assets as
collateral, given their strong bargaining power," one of the people said.
For instance, Cnooc is looking for a five-year loan at an interest rate of
around 150 basis points, while Sinopec is looking for a five-to seven-year loan
with an interest rate below 200 basis points, people familiar with the
situation said.
China
's oil
giants are stepping up investment in overseas oil assets as the Chinese
government encourages state-owned oil companies to buy assets abroad to secure
energy for its booming economy.
China
's
economic recovery is keeping energy demand and oil prices high, driving
earnings growth that will help Cnooc and Sinopec Group fund their ambitious
plans to raise both output and reserves.
The International Energy Agency now forecasts 2011 year-on-year global oil
demand growth of 1.3 million barrels a day, compared with the 2010 rise of 2.5
million barrels, partly driven by strong growth in
China
.
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