Banks sign mega-prepayment with Glencore and Vitol

Abstract

A group of international banks has signed a mega-prepayment loan with commodity trading companies Glencore and Vitol to fund long-term purchases of crude oil from the Russian state-owned oil producer Rosneft. The $7.5 billion financing goes into syndication next week. It is hoped the syndication will result in an increase to $10 billion. The financing relates to the long-term crude supply contracts that Glencore and Vitol signed with Rosneft on 4 March, and this was first set under initial agreement with the trading companies signed in December 2012.

International banks have signed a mega-prepayment loan with commodity traders Glencore and Vitol to fund long-term purchases of crude oil from Russia's Rosneft.

A group of international banks has signed a mega-prepayment loan with commodity trading companies Glencore and Vitol to fund long-term purchases of crude oil from the Russian state-owned oil producer Rosneft.

The $7.5 billion financing was signed yesterday (7 March), and goes into syndication next week (see below for full details of the loan structure). It is hoped the syndication will result in an increase to $10 billion. One banker comments: "We anticipate that syndication will go very well as there are early indications of significant market appetite for this attractive deal and these borrowers."

The financing relates to the long-term crude supply contracts that Glencore and Vitol signed with Rosneft on 4 March, and this was first set under initial agreement with the trading companies signed in December 2012. The crude oil supply agreement with Glencore envisages supply volumes of up to 46.9 million tonnes of crude, while the contract with Vitol envisages volumes of up to 20.1 million tonnes. The price of the crude, through the series of supply transactions, is set at Rosneft tenders.

The prepayment financing will see Rosneft receive funds of up to $10 billion before any crude supplies are delivered. Rosneft will be using the funds for its corporate purposes, but specifically it will cover some of the $31 billion overall cost of the group's acquisition of TNK-BP from BP and AAR (Trade Finance 14/02/13).

Commenting on the agreements Igor Sechin, Rosneft president and chairman of the Board notes: "We are happy to start the implementation of the long-term contracts after having agreed heads of terms late last year. A number of aspects constitute a landmark approach: on the one hand, we guarantee predictable supply volumes to our customers based on tender pricing, on the other - we receive prepayment that can be used for our strategic goals. The contracts are beneficial for all the parties: they support further development of Rosneft resource base, guarantee stable supplies to Glencore and Vitol, ensure energy security for end consumers and in the long term will allow the optimisation of transportation and logistics chains of crude and petroleum products sales.

He adds: "I would like to note that the opportunity for other partners joining these contracts is open. We would like to thank all our partners as well as external legal counselors, consultants and funding partners who were involved in arranging this deal."

Ivan Glasenberg, Glencore CEO, states: "We are pleased to begin this new agreement with Rosneft, which increases our access to one of the world's most important oil markets."

Ian Taylor, president and CEO of the Vitol group of companies, adds: "We are pleased to have concluded an important long-term contract with Rosneft, one of our industry's leading and most influential global companies."

The $7.5 billion prepayment financing has been coordinated by Deutsche Bank. Bookrunning mandated lead arrangers (MLAs) are: Bank of America Merrill Lynch, BNP Paribas, HSBC, Citi, Deutsche Bank, JP Morgan, and Societe Generale CIB.

MLAs are Credit Suisse, Morgan Stanley and Santander. Lead arrangers are: ABN AMRO, Barclays, Lloyds, Rabobank International and UBS.

Arrangers have takes below $500 million, and MLAs have takes above $500 million.

The transaction has a five-year tenor and is understood to be well priced at 200 basis points over Libor before fees. Deutsche Bank is acting as facility and security agent.

The deal is structured through a special purpose vehicle (SPV) through which the prepayment is made and crude oil shipments and payments are transacted.

A source close to the deal tells Trade Finance Magazine: "All round this is a very good deal with really attractive pricing, and we fully expect it to reach $10 billion through syndication next week bringing in a wider group of lenders. It is a very good deal for the market overall."