China private refiner Shandong Qingyuan seeks funds to boost output-executive

By Chen Aizhu and Julia Payne

SINGAPORE/LONDON (Reuters) -China's private refiner Shandong Qingyuan Group is working with local authorities to overcome "liquidity pressure" and expects to boost output at a key refinery to as much as 85% of capacity soon, the general manager said.

Qingyuan has been operating its 100,000 barrel-per-day refinery in Linzi, a district under Zibo city, at half of its capacity on average so far this year due to a funding squeeze, Jiao Chong, the general manager told Reuters.

He said Jiuhe Financial Holdings Co Ltd, a government-backed investment firm, which took a stake in Qingyuan in 2015, is helping the group to secure funds that would allow it to operate its refinery at 80% to 85% capacity within 10 days.

A syndicate of international banks is also ready to grant Qingyuan a three-year extension on a $955 million loan, a source with direct knowledge of the loan said.

Qingyuan had sought an extension to the loan earlier this year, said four trading and banking sources familiar with the situation. They declined to be identified because the matter was not public.

Qingyuan signed the structured three-year loan with commodities trader Trafigura and global banks in September 2019, with lead creditors including the Netherlands' ABN Amro and ING Group, Australia's Westpac and Japan's Sumitomo Mitsui Banking Corp, according to Refinitiv's Loan Connector.

"Following prolonged negotiations with (a) syndicate of banks, the documentation is ready to be signed, whereby the maturity of the transaction has been extended to 6 years," said one of the sources who has direct knowledge of the loan.

"This will allow Qingyuan to continue to operate smoothly in the years to come," the source added.

ABN Amro, ING, Westpac, Sumitomo Mitsui declined to comment.

Jiao said he was not in a position to comment on the syndicated loan or the group's broader debt positions.

He added that Qingyuan was facing tight liquidity because of investments in upgrading the plant.

PAST FINANCIAL ISSUES

The local government of Linzi earlier this month gathered agencies such as the district economic planner, commerce and banking regulators to discuss ways to help Qingyuan secure funding, the company said on its official Wechat account on Aug 7.

Qingyuan said at the time the district authorities had urged the company to "stabilise foreign funding" and called for domestic lenders to boost the capital required for the plant to operate normally, without giving further details.

Jiao said Jiuhe had stepped in to become a shareholder in Qingyuan after the firm was caught in "a fallout in cross loan guarantees", without elaborating.

Under cross debt guarantees, companies provide collateral to help each other secure loans, but if one loan goes bad, it can cause defaults to cascade through the system.

"The district government took a stake of about 37% in Qingyuan in 2015 and has since been working with us," said Jiao.

A senior Jiuhe official, who declined to be identified because of company policy, said he was aware of a government team working with Qingyuan but did not give further details. Jiuhe also did not reply to an email seeking comment.

(Additional reporting by Paulia Duran in Sydney, Toby Sterling and Bart Meijer in Amsterdam,Aaron Sheldrick in Tokyo and Beijing newsroom; Editing by Florence Tan and Ana Nicolaci da Costa)

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