Loan for Sui gas companies: MoF urged to extend Rs24.19bn sovereign guarantee

ISLAMABAD: Petroleum Division has requested Ministry of Finance (MoF) to extend sovereign guarantee amounting to Rs. 24.188 billion in favour M/s Habib Metropolitan Bank Ltd (HMPB) and a syndicate of two banks led by United Bank Limited (UBL) along with Faysal Bank in favour of Sui gas companies, official sources told Business Recorder.

Sharing the details, sources said, Economic Coordination Committee [ECC) of the Cabinet while considering a summary submitted by Petroleum Division in 2015 approved bank borrowing to the extent of Rs. 101 billion in favour of M/s SNGPL and M/s SSGCL to carry out phase -II of pipeline project whereas Finance Division was advised to provide the government of Pakistan (GoP) guarantee in favour of these gas utility companies, enabling them to arrange the required financing from commercial banks.

Finance Division pursuant to decision of the ECC, on September 19, 2016 issued sovereign guarantee to M/s SNGPL in favour of syndicate of banks (Lead Bank HBL) for securing loan of worth Rs. 54.670 billion. The guarantee is valid for the tenor of the loan from FY 2016 to FY 2026. The outstanding amount of the loan at present is Rs.24.188 billion.

M/s SNGPL under the agreed term sheet secured loan of Rs. 54,670 million at six (6) month KIBOR plus 1.10% with consortium of banks.

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In view of high pricing of the current loan, M/s SNGPL decided to swap the debt with lower mark-up rate while pre-payment penalty was waived by all the banks and bids were called for the new loan.

Reportedly, M/s Habib Metropolitan Bank Ltd [HMPB) and a syndicate of two banks led by United Bank Limited (UBL) along with Faysal Bank offered term loan facilities for Rs.1.250 billion and Rs. 22.938 billion, respectively at minus 55 bps above three months KIBOR and minus 25 bps above six months KIBOR, respectively being the successful lowest bidders.

According to the Petroleum Division, reportedly, the term sheets provided by HMPB and UBL have been approved by the Finance Division in its letter of December 10, 2021. As per terms of the new loans, Letter of Comfort (LoC) in favour of new lender banks for an amount of Rs. 24.188 billion is required to be issued by the Finance Division for disbursement of funds. Besides, issuance of sovereign guarantee will be required for the perfection of the security against loans.

For issuance of Letter of Comfort and guarantee, Petroleum Division submitted the case of SNGPL to Finance Division on December 21, 2021 and advised that summary for financing facility amounting of Rs. 24.188 billion is required to be moved for consideration of the ECC of the Cabinet on immediate basis and that the Finance Division will issue LoC and GoP guarantee once approval of the competent forum is in place. In order to avail the financing facility, SNGPL has to achieve financial close of the new term loans by December 30, 2021.

Petroleum Division is of the considered view that the matter is not a new case for allocation of GoP guarantee as after the issuance of LoC, the existing bank guarantee is required to be re-issued in favour of new lender banks against current outstanding amount of the previous loan, i.e., Rs.24.188 billion for the remaining tenor of the loan.

Petroleum Division has proposed that ECC may consider approval of sovereign guarantee amounting to Rs. 24.188 billion in favour M/s Habib Metropolitan Bank Ltd HMPB) and a syndicate of two banks led by United Bank Limited (UBL) for the remaining tenor of the loan i.e. 4& 1/2% years along with issuance of letter of comfort by the Finance Division.

Copyright Business Recorder, 2021