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IPIC Loan Pricing Fails to Find Bankers' Favour

Source: Reuters 3/1/2012, Location: Middle East

Abu Dhabi's International Petroleum Investment Co (IPIC) is looking to pay 100 basis points in total to refinance a $850 million loan shortly coming due, three banking sources told Reuters. The level, which includes both the proposed margin and the fees on the three-year loan, has not been fixed but is said to be struggling to attract support from banks, despite the sovereign-owned fund's high profile and Abu Dhabi backing.

"I'm hearing mixed signals as while no banks I have spoken to have said 'yes', the company has said there are banks looking to join," one loan banker at an international institution said, speaking on condition of anonymity. IPIC did not return calls seeking comment on the refinancing.

Banks are struggling to justify the economics of the trade, both in terms of the pricing which they feel a credit like IPIC should be paying and what is available elsewhere in the market.

Two of the bankers pointed to the fact that the $1.5 billion 18-month bridge facility which IPIC took out in June was trading at the end of last week at 200 bps, double the spread which the fund is looking to pay on the new deal. "Why would we agree to a deal at 1 percent when we can get 2 percent in the secondary market?" said a separate banker.

The bridge was originally priced at 50 bps - stepping up after 12 months - a level which, at the time, bankers said was prohibitive.

Loan pricing has also moved out since then on account of heightened funding costs caused by market volatility and the withdrawal of a number of European banks from the Gulf syndication loan space.

IPIC is looking to refinance the $850 million, three-year loan it signed in February 2009, which was used to fund the purchase of a 17.6 percent stake in Oil Search Ltd, an oil and gas firm with its interests in Papua New Guinea.

The loan, one of the first to be completed in the region after the collapse of Lehman Brothers shocked global financial markets, paid 300 bps and was funded by Abu Dhabi Commercial Bank, Credit Agricole, Deutsche Bank, First Gulf Bank, Natixis and Royal Bank of Scotland.

A banker told Reuters last month that IPIC could end up repaying the loan, instead of refinancing it, if it couldn't achieve the pricing it wanted.

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