Citigroup has been appointed by Indonesia oil and gas company Pertamina to arrange and underwrite an acquisition finance loan for the purchase of three crude oil tankers. The deal will be an export credit agency backed loan with a tenor of eight years and a size of around $100 million.
This is the first time that Pertamina has gone to the international dollar market as a stand-alone corporate credit. Its previous forays in international markets have been on a project basis with no recourse to the parent. Pertamna's CFO, Ainun Na'im, confirmed that the mandate had been awarded and was looking to close the deal "within one month."
He further added the "spread will be very competitive." Its most recent international project financing was for the Bluesky project in February 2003, in which it raised $200 million from JBIC, Credit Lyonnais and ING.
That project loan was priced at Libor plus 275bp. The Citigroup deal is the latest step in Pertamina's on going corporatization programme. This sees the company move from being little more than a government agency, whose finances were interchangeable with the government to a limited liability company and then eventually to full privatisation.
The ECAs backing the deal will be from Korea and China, where two of three ships will be built. The third tanker will be built domestically and will be financed out of Pertamina's own cash reserves, bringing the total project cost up to around $120 million.
The mandate is something of a triumph for Citigroup, which is seeking to become the house bank for Pertamina as it turns itself into one of the biggest companies in the region. Pertamina already has annual turnover of Rp250 trillion ($25 billion), although it does not really make any profit.
Na'im confirmed that once the loan was signed, the company was seeking to raise some onshore money through the rupiah bond market, followed by a full international corporate bond "before the end of the year".
No details on potential size, tenor or lead managers are available at present. However, Pertamina has already retained Pefindo - the domestic credit rating agency - and Standard & Poor's to grant it a rating and according to Na'im "we are confident that we can achieve a rating higher than the sovereign."
One comparable could be PT Medco Energi, which is a privately held Indonesian offshore oil and gas exploration and production company. Medco has a rating of B+ from S&P, a few notches above the sovereign's rating of B-. However, Pertamina has 70% of its business in the downstream work of refining, petrol stations and all other conceivable oil and gas enterprises. Rating agencies traditionally only allow companies to pierce the sovereign ceiling if their business is essentially offshore with full dollar revenues and little scope for political interference.
Still, Pertamina's size alone should provide it with the necessary credit comfort. The company produces 150,000 barrels of oil equivalent (boe) a day and sells over 1 million boe of gasoline every day. It has reserves of 2.7 billion boe, which do not yet show on Pertamina's balance sheet.
According to Na'im, Pertamina's balance sheet has a book value of Rp100 trillion ($11 billion). Na'im believes that once the company is corporatized and its activities deregulated, it can start to monetize its huge capacity and become a company with a $50 billion valuation - similar in size to TotalFinaElf.
The company also only runs a debt to asset ratio of 30%, which is very low compared to the global oil majors. The corporatization programme will allow Pertamina to take on new debt, as well as undertake hedging contracts for oil and currencies, something that is not allowed at present. Na'im also confirms that the company's management is "already making scenarios for our privatisation."
Therefore the whole corporatization programme will instantly see Pertamina become one of the biggest potential fee generators in Southeast Asia. No wonder Citigroup is pleased with the mandate for the shipping loan.