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Socar Plans to Sign $3.5 Billion Turkey Refinery Loan in May

Azerbaijan’s state oil company, known as Socar, is in the final stages of negotiations for a $3.5 billion loan to help build a refinery in Turkey, said Kenan Yavuz, chief executive for the company’s Turkish unit.

State Oil Company of Azerbaijan expects to sign the agreement in May, Yavuz said in a telephone interview today. Most of the $3.5 billion package, arranged by the Turkish unit of Unicredit SpA (UCG), Italy’s biggest lender, will be provided by 15 international lenders with guarantees from export credit agencies, or ECAs, of six countries, he said. The package will finance the construction phase of the project and the total financing bill will exceed $3.5 billion including costs from the post-construction period, he said.

Socar is building the $5.5 billion Star refinery on the Aegean coast as it seeks to expand its naphtha output. The refinery, Turkey’s fifth, will process 10 million metric tons of crude a year from 2017, producing 1.3 million tons of naphtha, as well as diesel and jet fuel.

“This is the largest financing with the longest maturity to be provided for a private industrial investment in Turkey,” Yavuz said. “Interest on the ECA package is very favorable and attractive for us.”

London Talks

The export credit agencies involved are the U.S. Ex-Im Bank, the Japan Bank for International Cooperation, Export-Import Bank of Korea, and those of Italy, Canada and Spain, Yavuz said.

Negotiations with local banks for a $500 million commercial portion of the package will be finalized “within a few days,” Yavuz said.

The Baku-based company will sign a total package of $3.9 billion for the refinery, two people with direct knowledge of the deal said earlier.

A team of senior executives from Socar is in London today to discuss the loan package with creditors and the arranger, Yavuz said.

The Azeri oil producer and processor, which has pledged $17 billion for projects in Turkey by 2018, including a pipeline to carry gas to Europe via Turkish soil, is increasing spending amid rising demand for fuel and chemicals.

Naphtha from the Star refinery will be used to make petrochemicals at Socar’s Turkish Petkim Petrokimya Holding (PETKM) division, the country’s biggest petrochemicals company.

‘Cutting-Edge’ Equipment

Petkim will take 2 million tons of fuel a year from the plant, to be built by Tecnicas Reunidas SA, Itochu Corp. (8001), Saipem SpA (SPM) and GS Engineering & Construction Corp. (006360)

The U.S. Ex-Im Bank approved a $641 million loan to finance the export of equipment to Turkey for the project, its chairman Fred Hochberg said in December. The move will support exports of “cutting-edge American equipment” and support 3,000 jobs in the U.S., he said.

As well as naphtha, the refinery will produce 4.9 million tons of diesel a year and 1.63 million tons of jet fuel, Yavuz said. It will also make liquefied petroleum gas and petro-coke.

The International Finance Corporation, the private sector lending arm of the World Bank group, and the European Bank for Reconstruction and Development both canceled plans to finance the project, the two institutions said in a joint statement March 17.

Unicredit and its Turkey joint venture, Yapi & Kredi Bankasi AS (YKBNK), may lend about $500 million to the project, Gianni Franco Papa, head of the lender’s Central and Eastern European division, said in November.

To contact the reporter on this story: Ercan Ersoy in Istanbul at eersoy@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net Ben Holland, Karl Maier

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