China Chokes Angola Credit

Is China beginning to lose patience with the Angolan regime? Maka Angola has learned that the China Development Bank (CDB) has declined to make any further funds available to the Angolan state oil company Sonangol, under a US $15 billion line of credit granted in December 2015, citing Angola’s “lack of contractual compliance” and attempts to “use the money for indeterminate ends”.

Sources at the Angolan Finance Ministry have revealed that US $5 billion of December’s loan was intended to cover oil production costs, leaving US $5 billion for debt refinancing. In exchange Angola would increase its cargoes of crude to China. The other US $ 5 billion are for the Finance Ministry’s use.

Until recently over half of the 50-60 oil shipments out of Angola each month went to the Western oil majors who operate the oil fields and platforms that allow Angola to export 1.8 million barrels per day. Four or five shipments went directly to China in pre-financed deals. That left Angola with around 20 shipments for open sale.

As a direct result of that December 2015 loan agreement with CDB, shipments to China increased to six from February this year. Industry experts say that, together with increased shipments to the majors, that has left Angola with fewer than 10 shipments for open sale at a time of continued low prices, leaving the country with a huge budget deficit. In February 2016 it had only one shipment available for sale.

A source at the Finance Ministry told Maka Angola: “Friends are friends, but business is business. And the Chinese are strangling us.”

Maka Angola has learned that the CDB asked the Sonangol Administration (now in the hands of the President’s daughter Isabel dos Santos) to travel to China to explain why they have failed to fulfill the terms of the contract and to try to find a solution. A source tells us that Isabel dos Santos was disinclined to make the trip, “out of arrogance”. A Chinese delegation is now due in Angola on October 8 to tackle the issue.

At this time, the Chinese line of credit is Sonangol’s main life raft. The state oil company’s debt ratios are outside the limits required by international banks. Sonangol has little to no leeway to negotiate other sources of funding as a way out of the crisis that is bringing it down. This has led an increasingly desperate Angola to reach out to countries like Egypt in search of loans.

In spite of the brave face put on by the Angolan leadership, it appears there was considerable truth in the warning sounded by Former Chairman Francisco de Lemos José Maria, that Sonangol is effectively bankrupt.

And if Sonangol is bankrupt, then where does that leave the Angolan government which relies on oil revenues for most of its operating budget. Surety for Sonangol’s foreign debt  is the Angolan government. As they scramble to find new loans to service the existing ones, Angola is caught in a downward spiral and its creditors must be wondering if they will ever recoup their investment