Sinopec to Benefit Most From Oil-For-Loan Accords, Analyst Says

By Winnie Zhu

Feb. 20 (Bloomberg) -- China Petroleum & Chemical Corp., the nation’s biggest refiner, may benefit the most among domestic oil-processors from the oil-for-loans agreements the government signed with Brazil, Venezuela and Russia this week.

“The deals will help China Petroleum more as it is a net user of oil when it’s quite expensive to extract domestic resources,” said Lorraine Tan, deputy director of equity research at Standard & Poor’s. Sinopec, as China Petroleum is known, relies on imports to meet 70 percent of its crude needs while its largest rival PetroChina Co. is almost self-sufficient, according to calculations by Bloomberg News.

China entered into an oil-for-loans accord with Brazil yesterday -- its third such deal in three days -- tapping the nation’s $1.95 trillion foreign-exchange reserves at a time when credit is scarce. In all, the world’s second-largest oil user will get about 600,000 barrels a day, equal to 17 percent of its imports last year, in return for providing $39 billion of loans.

“It’s a smart move for the Chinese government to take this step as energy security is the number one priority now,” Tan said by telephone from Singapore. More of such deals can be expected this year because of the global recession, she said.

The cost of borrowing in dollars for three months held at the highest level in five weeks. The London interbank offered rate, or Libor, that banks say they charge each other for three- month loans in dollars stayed at 1.25 percent yesterday, the highest level since Jan. 9, according to the British Bankers’ Association. The Libor-OIS spread, a gauge of banks’ reluctance to lend, was little changed at 99 basis points.

Oil and Loans

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, agreed to a $10 billion loan from state-run China Development Bank Corp. and supply as much as 100,000 barrels of oil a day to Sinopec, Chief Executive Officer Jose Sergio Gabrielli said in Brasilia yesterday.

“The deal could open up opportunity for Sinopec to tap into deepwater oil-gas exploration in offshore Brazil, leveraging on Petrobras’ proven track record,” Gordon Kwan, head of China research at CLSA Ltd., said in e-mailed comments.

China agreed on Feb. 17 to provide Russia with $25 billion of loans in return for 300,000 barrels a day of oil for 20 years. Venezuela’s Petroleos de Venezuela, known as PDVSA, will provide 200,000 barrels a day to the Asian country to pay down a $4 billion loan from China Development Bank. Venezuela’s oil is “at the service of China,” President Hugo Chavez said Feb. 18.

‘Financial War Chest’

“Chinese oil companies are lucky to be able to leverage on their government’s vast financial war chest to acquire overseas assets, hopefully at the bottom of the oil price cycle,” said CLSA’s Kwan.

Sinopec shares fell 2.1 percent to HK$4.21 in Hong Kong trading at the midday break today. PetroChina dropped 3.7 percent to HK$5.70. The Hang Seng Index declined 2.5 percent.

The deals place China and the oil-producing countries in a win-win position, said Zhu He, vice chief engineer of the Economic and Development Research Institute under China Petrochemical Corp., Sinopec’s parent.

“We will get access to their oil and they got their oil sold, though the cost of transporting oil from Venezuela and Brazil would be relatively high,” Zhu said.

To contact the reporters on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net