Sunday, March 30, 2014

The UBS loan and IPIC deal by the Governemnt of Papua New Guinea

Vincent Moses/Commentary on PNG NEWS Page
Facebook/30th March, 2014 12:04 PM

There was only one loan and that is UBS, and IPIC deal was not a loan. Papua New Guinea Government has sold our Oil Search shares to IPIC to raise $1.7b to fund our equity (19.6%) in the PNG LNG Project. 

At the time Oil Search shares were only worth $5 and not worth the $1.7b we needed. So we sold them under a special share sale agreement on its future value being $8.55. What believed the share price will be worth upon completion of the LNG Project in Mar 2014.

To get IPIC to agree to this deal certain securities (collateral) were put in place IPBC SOE's to underwrite the difference between what the shares were worth at the time $5 and future prices of $8.55. The difference we still owed on the sale. This difference was executed under an exchangeable bond arrangement or asset swap that IPIC held on and PNG Govt would be required to pay interest on until the sale agreement expired in March 2014.

Under this agreement should the Oil Search share price not reach $8.55 then PNG Govt would have pay the difference. If the shares did reach $8.55 on March 2014 then we owed nothing and walked away from the sale. In addition over the four years IPIC held onto our exchangeable bonds representing the difference we owed and until the bonds matured on Mar 2014 PNG Govt had to pay interest on them.

IPIC made provision in the agreement that should PNG Govt fail to meet the difference they reserved the right to sell the shares to recover any shortfall. PNG Govt agreed but requested pre-emptive rights that if IPIC decided to sell the shares they would give PNG Govt first right to buy them back. When the sale agreement matured in March 2014 IPIC made it known to PNG Govt it didn't plan to sell the shares and therefore PNG Govt was not entitled to buy them. Whether it was a good deal or not, we sold the shares for $1.7b to buy into the LNG Project which is now worth just under $5b providing 20 years of income stream to the country not to mention investor confidence setting an important platform for future Gas Projects.

On the USB loan its a bad investment for a number of reasons. We should have bought directly into the Gulf LNG not given the money to Oil Search to do it. Unlike the PNG LNG Project were our direct investment in the deal quadrupled from $1.7b to $5b with direct earnings from the Gas Sales. 

In the UBS loan we paid Oil Search $1.1b which will never provide the same returns other than peanut dividends payments. In the end all the parties involved in this deal, PAC LNG who sold their shares in Inter-Oil to Oil Search, Oil Search itself, UBS and those who alleged got kick backs all benefited big time. The loser in this deal being the people of PNG. We all got suckered!"

I'm not sure if this better explains everything.
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