Kuwaiti state-owned oil company plans multibillion-dollar loans to cover funding gap

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Through Fiona macdonald at 03/25/2021

(Bloomberg) – The Kuwaiti state oil company plans to borrow up to $ 20 billion over the next five years to make up for an expected funding shortfall, a person familiar with the matter said.

Kuwait Petroleum Corp. will need the money to maintain petrostate crude oil production levels, said the person, who asked not to be named because the information is private.

The borrowing plan highlights how affected countries in the Persian Gulf were by falling crude prices last year as the coronavirus pandemic spread and demand for energy plunged.

The company hands over almost everything it produces from crude sales to the OPEC member government. It is then repaid in installments to finance investments, primarily for upstream operations and oilfield investments. The company could face a deficit of 6 billion dinars ($ 19.9 billion) over five years, although it hopes to minimize the gap by becoming more efficient, the person said.

KPC plans to cover the deficit by issuing debt, including in international markets. The situation will be reviewed every six months to assess business needs and borrowing costs, the person said.

Kuwait’s financial situation – like that of almost every major oil producer – was hit last year when the virus took down planes and shut down businesses across the world. The government faced a cash flow crisis and ordered the KPC to transfer more than 7.5 billion dinars in dividends to the treasury, but which the Supreme Petroleum Council had previously said could be kept.

The KPC has since reached a preliminary agreement to repay the sum over 15 years. It helps but won’t solve the business problem, the person said.

The company’s media office could not be reached for comment.

Oil represents about 90% of Kuwait’s income. The country pumps around 2.4 million barrels of crude per day, making it the fourth member of the Organization of the Petroleum Exporting Countries.

Kuwait is trying to cut spending to contain its economic crisis. KPC has reduced the capital expenditure forecast for the next five years by more than 30%. The company hired a consultant to help it merge eight subsidiaries into four in order to streamline operations. It should be finished by the end of 2022, the person said.

Last month, the government asked parliament for permission to withdraw money from the sovereign wealth fund for the first time since the aftermath of the Gulf War in 1990.

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