UPDATE 2-BNP selling $11 bln of energy loans-sources

Fri Jan 27, 2012 7:28am EST

* Canadian buyers interested in loans -sources

* U.S. bank Wells Fargo among interested -source

* Europe banks shedding dollar assets amid euro crisis

By Lionel Laurent

PARIS, Jan 27 (Reuters) - BNP Paribas, France's largest listed bank, is aiming to sell up to $11 billion of loans to oil and gas companies and has received interest from Canadian buyers, according to two banking sources familiar with the situation.

The sale is the latest sign of retreat by European banks, which have faced months of funding turmoil as a result of the euro zone debt crisis and are pushing to offload dollar assets to shrink their balance sheets and build precious capital.

The cutbacks are putting pressure on dollar-focused industries such as energy, shipping and aerospace. Indonesian tanker firm Berlian Laju is teetering on the brink of default, while Swiss refiner Petroplus filed for bankruptcy on Tuesday.

BNP Paribas, which according to one banker opened its energy loan-book up to potential buyers just over a month ago, has whetted the appetite of several banks in North America, particularly Canada, according to sources.

"The $11 billion figure was cited ... There is certainly Canadian interest," one banker familiar with the deal said. "Our feeling is that it is inevitably going to be broken down into chunks."

Another source said that in addition to Canadian buyers, BNP had received interest from U.S. banks including Wells Fargo and had been getting offers with a discount of less than 5 percent of the value of the loan.

"The cost of funding is killing BNP's margins so they want to get out," the source said. The portfolio contains long-term loans to energy companies that do not have the cash flow to fund their own exploration or production activities, he added.

Although the oil and gas sector has been less hit by the banking crisis than others, thanks to high energy prices, some smaller companies have recently found banks more reluctant to lend them money.

The sale was earlier reported by the Financial Times, which cited people with knowledge of the situation as saying the energy loan portfolio was on the market and BNP was talking to at least three potential, unnamed buyers.

The portfolio contains loans with a face value of about $11 billion, of which only $4 billion has been drawn by the borrowers, the sources told the FT.

BNP Paribas declined to comment.

One person close to the bank told Reuters that it was not quitting the global energy business and remained committed to lending money to strategic clients in the sector.

On Jan. 18, Reuters reported that BNP was to sell existing assets and cut lending in any currency other than the euro for the next 15 months as part of its plans to boost capital buffers and wean itself off frozen funding markets, according to an internal document.

Rival Societe Generale has also told employee representatives in a 245-page memo that it is to exit or strongly reduce property, shipping and aircraft financing activities, as well as energy trading in North America.

French banks are among the top ten providers of commodity and trade finance, along with ING and German and Italian banks.

"Long-term structural issues remain with French banks," JPMorgan analysts wrote in a note on Friday. "(They) are still over-leveraged and there is still 100 billion euros ($132 billion) of further deleveraging required on top of the announced plans."

While banks tend to steer clear of funding oil exploration, because of the risks involved, they often lend to companies that have found oil and can prove commercial reserves. To protect against a fall in oil prices, they often insist borrowers hedge half or more of production at a price that guarantees a profit.

With the oil price around $110 a barrel, reserves-based loans are likely to be of a good quality.

At 1225 GMT, shares of BNP were down 3.2 percent at 34.67 euros, underperforming a slightly lower STOXX Europe 600 bank index.

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