Landmark financing for mega counter-cycle expansion
Published: Feb 2025
Best Funding Solution
Overall Winner
CNOOC and Shell Petrochemicals Co., Ltd
Photo of Hobson Chan, CNOOC & Shell Petrochemicals Co., Ltd.
Hobson Chan
Treasurer
CSPC is a 50:50 petrochemicals joint venture (JV) between Shell and CNOOC, established in Guangdong, China in 2000. With an original US$4.1bn investment, it was China’s largest JV at inception.
The challenge
CSPC needed to finance a new mega-size expansion project (US$5.5bn long-term loan and a US$450m working capital facility) amid a deteriorating credit rating due to consecutive losses going back to 2022.
Lenders were keen to understand when CSPC would report a positive net income after previous years’ downturn. Lenders were concerned about the company’s ability to sustain competitiveness and profitability in an over-supplied market.
Large-scale construction projects typically require some sort of guarantee or credit enhancement, as lenders’ appetite to take construction risk is low. However, shareholders had a strong preference not to provide any guarantee in both construction and operation stages.
CSPC aimed to achieve the lowest possible interest rate despite a deteriorating credit rating.
Although the construction costs for the project were primarily in RMB, there would be some foreign currency payments. The specific currency mix would not be determined until early 2025, making the effective mitigation of currency risk a critical challenge.
CSPC had an outstanding term loan of around US$1.2bn from a lending consortium which had the right to veto CSPC from borrowing new debt. The treasury team therefore needed to pitch to the new lending consortium but also to develop a financing solution acceptable to existing lenders.
The solution
CSPC formulated a robust financing strategy, fostered collaboration between JV team and shareholders’ experts, and committed to meet the compressed timeline.
CSPC’s financing strategy featured innovative terms such as a “clean loan” and an 18-year RMB loan tenor. This approach not only safeguarded the financing but also positioned CSPC to capitalise on potential opportunities. It also designed a bidding process to induce competition among lenders achieving a pari passu arrangement to ensure long-term financing stability.
The team jointly developed a comprehensive analysis to help the lenders understand the market dynamic in the petrochemicals industry. The team also shared key strategic initiatives over the next three years to regain top quartile competitiveness. It developed a financing model to evaluate debt repayment capacity under adverse scenarios, effectively quantifying risks to reassure lenders their interests were well protected.
CSPC invited financing experts from the shareholders’ HQs in Beijing, Singapore and London to form a financing task force with CSPC taking the lead.
Selected lenders
CNOOC Finance Corporation Limited (CNOOC Finance)
Bank of China Limited (BOC)
Industrial and Commercial Bank of China Limited (ICBC)
Agricultural Bank of China Limited (ABC)
China Construction Bank Corporation (CCB)
Bank of Communications Company Limited (BoCom)
Selected advisor
Zhong Lun Law Firm
Best practice and innovation
CSPC’s strategy combined a base case grounded in proven practices within the Chinese banking sector with an upside case featuring unconventional terms. This dual approach not only safeguarded the financing but also allowed CSPC to capitalise on unique opportunities, exemplified by the groundbreaking 18-year RMB loan tenor (against market norm of 15 years) on “clean loan/non-recourse” basis and RMB interest rates that matched China’s sovereign credit bond yields for similar tenors.
CSPC minimised traditional negotiation bottlenecks by providing detailed term sheets and draft loan documents to potential lenders for confirmation before the RFP submission. This pre-emptive communication reduced back-and-forth discussions and streamlined the documentation process. CSPC took the lead in loan documentation and syndication, rather than relying on a lead arranger, which ensured a smoother closing process and greater control over the financing terms.
Finally, the CSPC team developed a financing model and compiled the project information memorandum (PIM) with support from shareholders and the project team, bypassing the need for external financial advisors.
Key benefits
Secured financing without any shareholder guarantees or pledged assets in both construction and operation stages, surpassing other projects in China.
Competitive pricing for both the USD and RMB facilities, with the RMB interest rate matching China’s sovereign credit rating bond yield for similar tenors.
Cost savings – (over CNY450m or US$64m during the loan cycle).
Secured industry-leading 18-year tenor for the RMB loan tranche and ten-year dual currency (RMB and USD) loan tranche.
Established a pari passu arrangement between the current and new lending consortiums.
The Adam Smith Awards Asia are the industry benchmark for best practice and innovation in corporate treasury. The 2024 awards attracted 406 nominations. To find out more please visit treasurytoday.com/adam-smith-awards-asia
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