Loan from China Development Bank to Sonangol is a sign of the “close relationship” between Angola and China

11 March 2013

The US$1.32 billion loan recently granted by the China Development Bank to Angolan oil company Sociedade Nacional de Combustíveis de Angola (Sonangol) is a sign of the “close relationship” between the two countries, which will “remain strong,” the Economist Intelligence Unit said.

“The loan underlines our expectation that relations between Angola and China will remain strong and will, for the most part, focus on oil,” the EIU said in its latest report on Angola.

Added to almost US$15 billion granted to Angola by Chinese financial institutions, the loan is being provided at a time when Angola is showing signs of trying to diversify its sources of international funding, and the alternatives include Russia.
The loan, which was taken on via Sonangol Finance Limited, will be repaid over a period of 10 years at an agreed interest rate of 3.5 percentage points on Libor (London Interbank Offered Rate).

“This is a demonstration of the robustness of Sonangol’s long term financing model, which over the last seven years has allowed it to take on loans of around 18 billion euros, of which 50 percent have already been repaid,” the oil company said.

In the statement to announce the agreement neither of the two sides gave details about what the funding would be used for.

According to the Economist, the agreement shows the “solid financial reputation” of Sonangol which, as well as being a “massive” company, has a vast network of subsidiaries in air transport, telecommunications and real estate, as well as shares in several banks and insurance companies.

In 2011 the company posted profit of US$3.32 billion, which was an increase of 32 percent on the previous year.

“Although its opacity has been criticised, Sonangol has long been viewed as an oasis of efficiency in Angola,” compared to some government departments, the report said.

The EIU noted that several deals have been closed following a visit to Angola by China’s deputy Trade Minister Li Jinzao, in October 2012, which boosted diplomatic ties between China and its biggest trading partner in Africa.

“Large trade and investment deals, particularly in oil, construction and agriculture, have deepened the relationship in recent years. Chinese companies have established themselves in the construction, telecoms, commerce, power and mining sectors,” the EIU analysts said.

The EIU’s projections for the Angolan economy are favourable overall, and it believes that the price of a barrel of oil may rise to over the figure used as the basis to draw up the State Budget, leading to a budget surplus of up to 4.6 percent of the Gross Domestic Product. (macauhub)