October 26, 2017 / 11:39 AM / a year ago

Chad hires Rothschild to advise on $1 bln Glencore debt - sources

* Glencore debt accounted for 15 pct of 2016 GDP

* Glencore being repaid with crude cargoes

* Chad struggling after oil revenues plunged

* Debt service calculation is opaque - IMF

By Julia Payne

LONDON, Oct 26 (Reuters) - Chad has hired Rothschild & Co to advise it on restructuring its external debt, namely a more than $1 billion loan from oil trader Glencore, four sources familiar with the matter said.

The International Monetary Fund has said the debt held by Chad, one of the world’s poorest nations that relies heavily on oil revenues, was unsustainable without restructuring the commercial, external portion.

An agreement on a restructuring had been expected to be completed last month, an IMF report said.

But the sources, who included two bankers, said the parties involved were aiming for the end of the year or early 2018.

Glencore and Rothschild both declined to comment.

Chad’s oil ministry directed a request for comment to its Finance Ministry, which also declined to comment.

“The IMF is trying to lean on the country to share the burden with Glencore and the commercial lenders, but the country has little negotiating power,” one of the sources told Reuters.

The Glencore loan accounted for 98 percent of Chad’s $1.4 billion external commercial debt at the end of 2016, according to the IMF. The World Bank estimated Chad’s total gross domestic product last year at about $9.6 billion.

Glencore began lending to Chad in exchange for crude in 2013 with a $600 million three-year prepayment followed by a $1.45 billion oil prepayment in 2014 to finance the state oil firm’s purchase of Chevron’s oil assets in the country.

International trading houses often lend to their partners, whether governments or companies, to secure business and gain better returns. But falling crude prices or other changes to the credit environment can turn such deals sour.

Chad’s key revenue stream was crippled by the fall in the oil price in 2014, prompting a restructuring of the loans with repayments extended to 2022.

Chad produced about 110,000 barrels per day in 2016 and exports its crude via a pipeline through Cameroon, according to the U.S. Energy Information Administration.

Even after restructuring those loans, the country has still struggled. Only 11 percent of its dwindling oil profits went into government coffers last year, down from about a third in 2015, the IMF reported in August.

At the end of June, the IMF agreed a new credit arrangement with Chad for a little more than $300 million.

Chad has also received loans from the World Bank and the African Development Bank among others.


The IMF has said it was unclear how existing debt payments were being calculated. “The debt service ... is determined in an opaque manner,” the IMF said in an August report.

“Glencore, presumably in discussion with SHT (Chad’s oil firm), decides on the final allocation of payments to service the loan per oil shipment. The Ministry of Finance does not participate in this process and has little a priori information of the final amount paid to the Treasury, which varies significantly,” it added.

The IMF said that between 2015 and 2016, the amount allocated from oil sales to amortisation, interest and fees nearly doubled to about 60 percent.

A source familiar with the matter said debt costs changed from cargo to cargo partly because Chad has a trading contract and a debt contract with Glencore, which also has some exploration and production interests in Chad.

Government spending has halved in the past two years since oil prices plunged from more than $100 a barrel in mid-2014 to below $30 at the start of 2016. Oil now trades at $58 a barrel .

The spending crunch has come when Chad is fighting militant group Boko Haram, as well as facing a drought and a refugee crisis due most recently to those escaping Boko Haram attacks and conflict in the neighbouring Central African Republic.

“Chad cannot afford to wait six months to restructure, it cannot even afford to wait less. A lot is riding on this,” one of the sources said. (Additional reporting by Madjiasra Nako in N’Djamena and Dmitry Zhdannikov in London; Editing by Edmund Blair)

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