Kuwait Petroleum International (KPI) has expressed initial approval for a proposal to waive the interest on partners’ loans in the Vietnam refinery. The outstanding loans amount to approximately $4 billion until 2029, with KPI’s share equating to around $1.4 billion, reported Al-Qabas Daily.
According to the document, KPI has shown readiness to reduce the interest rate on refinery loans to as low as 0% if necessary. The refinery company previously highlighted the burden and negative impact of financing costs, particularly the partners’ loan, on the expected financial performance of the refinery in 2024 due to the excessively high interest rate.
In response to this issue, the company urgently proposed a reduction in loan interest rates. The refinery company conducted studies on loan interest options in early 2023 and found that the interest rate on its loans was significantly higher than the market average. As of December 2023, the outstanding balance of the loans stood at $3 billion, comprising $1.8 billion in principal and $1.2 billion in unpaid interest.
The company projected that interest on the loan would continue to accumulate sub-loans at an annual rate of approximately $360 million, totaling around $2.1 billion over six years until the loan’s final maturity in 2029. Considering the refinery project’s expected financial performance, the company noted a significant loss. Without a decrease in interest on the sub-loan, the company would only be able to pay interest starting in 2034 and would never be able to repay the principal.
However, reducing the interest on subsidiary loans would have a positive impact, enabling the repayment of interest and capital to the partners. Based on the latest financial model in 2023, if the sub-loan interest is reduced to 0%, the refinery company would be able to commence interest payments to partners in 2032, with full repayment of the principal in 2034.
The refinery company’s letter stated that there were no legal objections to entering into an agreement to adjust the interest rate on loans. It proposed undertaking all possible measures to enhance its commercial performance. The Nghi Son refinery, situated in Vietnam, commenced operations in November 2018.
With a capacity of 200,000 barrels per day, the project had a total cost of $9 billion, with Japan’s Idemitsu Kozan and Kuwait Petroleum International each owning a 35.1% stake. Meanwhile, Vietnam Oil and Gas Group holds 25.1%, and Japan’s Mitsui Chemicals possesses a 4.7% stake.
