Glen­core seeks $550 mil­lion to raise stakes in Kur­dish oil game

Kuwait Times - - BUSINESS -

LONDON: Glen­core is seek­ing to raise $550 mil­lion from in­vestors via a debt is­sue guar­an­teed by oil from Iraqi Kur­dis­tan in an at­tempt to se­cure a big slice of the high-risk - and high-re­ward - mar­ket in a re­gion at war with Is­lamic State. Kur­dish oil has been tar­geted by Euro­pean traders over the past two years, dur­ing an in­dus­try down­turn, since Er­bil be­gan sell­ing oil in­de­pen­dently from Bagh­dad. It has been rel­a­tively cheap due to the po­ten­tial for sup­ply dis­rup­tions and threats from Iraq’s cen­tral gov­ern­ment to sue any­one touch­ing the crude.

The gov­ern­ment of the au­ton­o­mous Kur­dish re­gion in Er­bil has bor­rowed around $2 bil­lion from Glen­core’s ri­vals such as Vi­tol, Pe­traco and Trafigura to be re­paid in oil. The com­pa­nies have all bor­rowed money from banks and lent it to Er­bil at their own risk. Glen­core, whose com­mod­ity trad­ing di­vi­sion has been un­der pres­sure to per­form as min­ing prof­its have de­clined, was the last mer­chant to en­ter the game ear­lier this year by lend­ing $300 mil­lion to Er­bil. The loan is be­ing re­paid by way of one mid-sized oil cargo a month, worth around $25 mil­lion.

Now the com­pany is seek­ing a much big­ger role in the re­gion, but wants to split the risks by sell­ing debt notes to be re­paid with Kur­dish oil in­come, ac­cord­ing to a prospec­tus seen by Reuters. Tech­ni­cally, the money would be raised by a spe­cial-pur­pose ve­hi­cle, says the doc­u­ment which has been sent to a small num­ber of in­vestors who spe­cialise in high-risk mar­kets. It says Glen­core ex­pects to en­ter into a new 5-year agree­ment with the gov­ern­ment of Kur­dis­tan to buy its crude, with de­liv­er­ies ris­ing from one cargo in Jan­uary, to two in Fe­bru­ary-March, four in April and six from May on­wards. Six car­goes a month would rep­re­sent a quar­ter of over­all ex­ports from Kur­dis­tan and would be worth over $1.7 bil­lion a year at to­day’s price of around $40 per bar­rel for Kur­dish oil, and more than $8 bil­lion over the course of five years.

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