CDB Lends $5 billion to Petrobras, Oil Supply Deal Signed Simultaneously
On December 5, the China Development Bank (CDB) signed a deal with Brazil’s state oil company Petrobras for a $5 billion financing facility that will be disbursed over 10 years through 2027. The deal was concluded on the same day that Petrobras told a press conference that it had signed a supply contract with Unipec Asia, a subsidiary of China’s state-owned Sinopec, to supply 100,000 barrels of oil per day (bpd) for a 10-year period through 2027. While there has been no confirmation that this is a resource-backed loan, appearances suggest that Petrobras is turning to its longstanding relationship with CDB as it faces unwelcoming capital markets following price-fixing and bribery scandals that pushed both Petrobras and Brazilian national credit ratings to junk status.
CDB has been Petrobras’s Chinese lender of choice. In September 2017, the two entities signed a strategic cooperation agreement to explore future financing and leasing options for oil platforms and other energy exploration equipment. This agreement also set the wheels in motion for this most recent tranche, described above, which comprises the second half of a package initially agreed to in February 2016. This agreement followed a previous loan of $5 billion announced in April 2015 that was intended to finance the purchase of Chinese goods and services. Indeed, Petrobras confirmed reports at the time that the loan agreement included a requirement that 60% of the value be spent on Chinese goods and services. CDB’s first major loan to Petrobras, signed in 2009, has a value of $10 billion, a ten-year term, and is repaid in oil: 150,000 bpd in the first year and 200,000 bpd thereafter.
Interestingly, the overall terms of CDB’s lending to Petrobas have not changed between 2009 and the agreement of December 5. In both cases, the effective price paid per barrel is $13.69. In October 2017, the average spot price of crude oil was $54.92, while in October 2009, the average was $74.08. The reason for the steep discount is unclear, but a price closer to global averages would rapidly accelerate the repayment schedule.
Other instances of Chinese lending to Petrobras includes a $1 billion loan agreement with the Export-Import Bank of China in May 2016 to pay for goods and services already contracted with Chinese firms, and another $1 billion loan from the Industrial and Commercial Bank of China (ICBC) to finance the development of an offshore oil platform.