* China's oil wholesale, retail markets slowly deregulating
* Chinese independent refiners still viewed as risky
* Trafigura already key crude supplier for Qingyuan
* BP signed oil-backed loans with two other independents
By Julia Payne
LONDON, Sept 23 (Reuters) - Commodities trader Trafigura has
joined a group of lenders to provide a $1 billion loan backed by
future oil sales to Chinese independent refiner, Shandong
Qingyuan, in a deal which underscores the opening up of China to
trading houses.
Chinese banks have scaled down lending due to an economic
slowdown, creating an opportunity for trading houses to step in,
just as they had after the 2008-2009 financial crisis when risk
appetite fell as bank regulation increased.
Based in Shandong province -- home to many of the non-state
refineries known as teapots -- Qingyuan operates a 104,000
barrel per day refinery and is one of China's largest
independently run lubricant producers.
Non-state owned refiners make up roughly a fifth of China’s
total crude oil imports.
"Trafigura is using credit as a way of cementing ties with
Qingyuan and positioning itself for a deeper footprint in the
Chinese wholesale and retail market, given that it is now
opening up," Michal Meidan, director of the China Energy
Programme at the Oxford Institute for Energy Studies, said.
The deal is worth $955 million to be repaid over three
years, banking sources said. The loan is backed by banks and
Trafigura has put up $30 million. China's state oil firm CNOOC
will take base oils as part of the agreement.
CNOOC and Qingyuan did not respond to a request for comment.
"Qingyuan is a key relationship for Trafigura and one of the
largest and most complex independent refineries in China," a
Trafigura spokeswoman said.
"Trafigura is pleased to have contributed as the majority
crude oil supplier for Qingyuan, as well as to participate in
this substantial largest prepayment transaction for an
independent refinery."
Prepayments are widely-used in commodity finance as they are
considered one of the most secure forms of lending. Lenders
provide upfront cash and get repaid with future physical oil
sales.
OPENING UP
Independent refineries hit the world stage in 2015 when
Beijing lifted a ban on private companies importing their own
oil. They are now tapping global financial markets in greater
numbers.
"The teapots were a no-go territory a few years ago. In the
beginning, Chinese banks issued letters of credit on behalf of
the big traders. Over time, the teapots began asking for open
credit. Gradually more traders gave those terms to them for
crude deliveries," one senior banking source said.
"But teapots are still considered a risky proposition."
Oil majors, such as Shell, Total, and
trading houses Mercuria and Vitol remain
cautious about offering open credit.
Last year, BP has several cargoes of crude stranded off
China's east coast for several months before Qingyuan offloaded
the barrels.
"On the crude sales side, there has always been the risk of
defaults by cash-constrained refiners, with product sales, the
risks are different. Few teapots have their own retail outlets
so they rely on sales to the majors, so they sometimes need to
cut product prices," Meidan said.
Since the end of last year, BP has signed two offtake
agreements with so-called teapot refiners. At the end of last
year it closed one with Sinochem Hongrun Petrochemical for $485
million over 3 years backed by deliveries of oil products.
In April, BP signed another $200 million deal over two years
with the Shandong Wonfull refinery to be repaid with
petrochemicals and bitumen. It was the firm's first foray into
foreign financing, a source close to the deal said.
BP declined to comment.
(Reporting by Julia Payne, additional reporting by Chen Aizhu
in Singapore and Muyu Xu in Beijing, editing by Louise Heavens)
