PNG Said in Funding Talks With Citigroup, Barclays on Oil Search

Citigroup Inc., UBS AG and Barclays Plc are among banks seeking to provide more than A$1.5 billion ($1.4 billion) in financing to help Papua New Guinea maintain its holding in Oil Search Ltd., people with knowledge of the matter said.

Lenders have been presenting options to the Pacific nation’s government on how to fund the repurchase of exchangeable bonds backed by its Oil Search stake it sold in 2008, said the people, asking not to be identified because the discussions are private. The country is close to picking a bank, one of the people said.

Papua New Guinea raised A$1.68 billion from International Petroleum Investment Co., an Abu Dhabi-owned investment fund, by selling bonds that can be exchanged for its 14.7 percent stake in Port Moresby-based Oil Search. The proceeds were used to finance the government’s share of a liquefied natural gas project being developed by Exxon Mobil Corp.

The $19 billion LNG venture is more than 90 percent complete and is expected to start shipments to Asia next year, Exxon said last month. The U.S. company owns 33 percent of the project, while Oil Search holds 29 percent and the Papua New Guinea government owns about 17 percent. Santos Ltd., JX Nippon Oil & Gas Exploration and a local landowners’ group are also among partners in the venture.

Peter Botten, managing director of Oil Search, was traveling and unavailable to comment. Spokesmen for Barclays, Citigroup and UBS declined to comment. Daniel Korimbao, a spokesman to Papua New Guinea Prime Minister Peter O’Neill, didnt’t reply to messages seeking comment.

Conversion Terms

The bonds are convertible into 196.6 million shares of Oil Search in March 2014, according to an IPIC filing in June. That means Papua New Guinea receives the equivalent of A$8.55 a share, company filings show. Oil Search closed at A$8.39 in Sydney trading yesterday, valuing the stake at A$1.65 billion.

Botten told analysts in August that the Papua New Guinea government was preparing a plan to finance the repurchase of the convertible bonds and was in discussions with Abu Dhabi officials.

Papua New Guinea’s debt is rated B1 by Moody’s and B+ by Standard & Poor’s, four levels below investment grade. The country’s gross domestic product was about $15.7 billion in 2012, or about $2,200 per capita, according to the World Bank.

IPIC’s holdings include stakes in Austria’s OMV AG, refineries in Spain and Japan and chemical companies in North America and Europe, according to its website. The fund plans to spend as much as $4.5 billion to build a fuel-processing plant in Fujairah in the United Arab Emirates and $3 billion on another one in neighboring Oman.

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