Chad Said to Seek Delayed Repayments on Glencore-Led Oil Loans

(Bloomberg) -- Chad is seeking to delay repayment of more than $1 billion of Glencore Plc-led oil-for-cash loans after crude prices plunged, the second time the African country has looked to restructure the debt in two years, according to people familiar with the matter.

Glencore has approached the banks that supported the deal to start talks, while Chad has already appointed financial and legal advisers for the discussions, the people said, asking not to be named because the matter is private.

The proposed rescheduling highlights the risk Glencore and the banks have taken in Chad, lending the landlocked country the equivalent of almost 15 percent of its gross domestic product. The country, with few sources of foreign exchange other than oil, is one of the most underdeveloped countries in the world, ranking 184th out of 198 in the United Nations Human Development Index.

"Glencore is engaged in constructive discussions with the government and banking partners," the company said in an emailed statement.

The debt negotiations come as the relations between Glencore and Chad cool. Last month, Idriss Deby, Chad’s president, criticized the deal with the commodities-trading house.

"I must admit that the loan obtained from Glencore was an irresponsible step," he told French newspaper Le Monde last month. "Because of falling prices, Glencore absorbs almost all of Chad’s oil sales to repay."

A government spokesman didn’t immediately respond to requests for comment.

Glencore and its banks agreed in late 2015 to restructure two oil-for-cash loans with Chad, dating from 2013 and 2014, extending the repayment to seven years from an initial four years. They also agreed to give the country a grace period on repaying the principal that expires this month. Delaying the repayments for a second time may affect banks including Credit Agricole SA, Deutsche Bank AG, Natixis SA and Societe Generale SA, which helped Glencore to raise money for the deals.

Informal Talks

Glencore executives last month started informal talks with the banks that financed the oil-for-cash loans, the people said. While it retains exposure to the debt, the commodities company syndicated the majority of the risk to the banks.

Glencore initially lent the African country $600 million in 2013 through a so-called pre-payment export deal, in which a nation receives an advance on its oil sales and repays the debt by allocating crude cargoes to its creditors. The African nation received a second advance on oil sales of $1.4 billion from Glencore in 2014 to help finance state-owned Societe des Hydrocarbures du Tchad’s acquisition of the stake held by Chevron Corp. in the country’s oil industry. Chad has already paid some of those debts, but more than $1 billion remains outstanding.

Chad has become a sore point for Alex Beard, the head of oil at Glencore. On top of the oil-for-cash loans, in 2014 he led the $1.35 billion purchase of Caracal Energy Inc., which has most of its assets in the African nation, when oil was trading near $100 a barrel. Glencore had to writedown a large chunk of its investment in Caracal after prices plunged.

To read a Bloomberg Intelligence primer on Glencore, click here.

The International Monetary Fund last week lent Chad roughly $300 million in emergency funds to help stabilize its economy after a two-year economic recession and large fiscal deficits.

David Lipton, the IMF first deputy managing director, said in a statement that Chad needed to reduce "the burden of external debt service," adding that the country’s government was "committed to restructure the debt with Chad’s major external commercial creditor."

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director of Glencore.

To contact the reporters on this story: Javier Blas in London at jblas3@bloomberg.net, Daniel N'doh Nadjitan in N'Djamena at nnadjitan@bloomberg.net.

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net, James Herron