LNG-II pipeline project: SSGCL seeks sovereign guarantee to swap Rs21bn loan

ISLAMABAD: Sui Southern Gas Company Limited (SSGCL) has sought sovereign guarantee from the Finance Ministry to swap a loan of Rs21 billion of LNG-II pipeline project of Habib Bank Limited with Faysal Bank Limited at considerably lower mark-up rate, sources close to the Energy Minister told Business Recorder.

Sharing the details, sources said the Economic Coordination Committee (ECC) of the Cabinet while considering a summary submitted by the Petroleum Division on September 3, 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 infrastructure development project (LNG-II) whereas the Finance Division was advised to provide government of Pakistan (GoP) guarantee in favour of both gas utilities enabling them to arrange the required financing from commercial banks.

The Finance Division, pursuant to the decision of the ECC, on September 1, 2016, issued sovereign guarantee to M/s SSGCL in favour of Habib Bank Limited for securing loan worth Rs39.800 billion. The guarantee is valid for the tenor of the loan from FY16 to FY26.

M/s SSGCL under the agreed term sheet secured loan of Rs. 39.800 billion at six months KIBOR + 110 bps. The outstanding amount at present is Rs. 21.012 billion. The sources maintained that in view of high pricing of the current loan M/s SSGCL decided to swap the debt with lower mark-up rate. Reportedly, Faysal Bank Limited, as Agent/investment Agent, has offered Syndicated Tem Finance Facility at six-month KIBOR + 10 bps.

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According to Petroleum Division, as per terms of the new loans, Letter of Comfort (LoC) in favour of new lender bank for an amount of Rs. 21 billion is required to be issued by the Finance Division for disbursement of funds.

Besides, issuance of sovereign guarantee will be required for the security against the loan of Rs 21 billion. For issuance of Letter of Comfort and a fresh GoP guarantee against the proposed financing, Finance Division in its letter of February 2, 2022 advised that approval of ECC may be solicited.

Petroleum Division argues that this 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, ie, Rs. 21 billion for the remaining tenor of the loan.

The sources said Petroleum Division has proposed that the ECC may consider approval of sovereign guarantee amounting to Rs 21 billion in favour of M/s Faysal Bank Limited for the remaining tenor of the loan, ie, 4 years and six months along with issuance of Letter of Comfort by the Finance Division.

Copyright Business Recorder, 2022