By Government Insider
Much has been said about the UBS Loan and the re-financing of it. But have we forgotten where it all started??? Do we understand why O’Neil had to take a loan on this?
In March 2009, Somare mortgaged 17.6% of Oil Search shares to International Petroleum Investment Company (IPIC) to raise $1.7 billion to fund PNG’s equity (19.6%) in the PNG LNG Project. The details of the agreement are sketchy but the main gist was that the Oil Search shares (196.6m) which was selling at $4.2 in 2009 was sold on its future expected value of $8.55 raising $1.7b when it expired in 2014 for mortgage repayment.
What actually happened was that when Somare got the IPIC loan, he mortgaged almost everything, on top of the Oil Search shares, he mortgage all of the SOEs as well. What O’Neil is trying to do is to get all the other SOEs out of that mortgage so that PNG is not held to ransom. For example, every time PNG want to buy a new plane for Air Niugini, they have to get the Arabs permission to do so.
This is the most risky business deal ever done by Somare, and of all funders he would have approached, he went to bed with the Arabs who are known for their ruthlessness. Even Japan Bank for International Corporation who had signed an MOU with the PNG Government for the same mortgage was overlooked. IPIC was chosen and an EPIC FAILURE it was!
Papua New Guinea had a very weak economy in 2009. At the time economists and commentators said the world was facing its worst prospects since the 1930s Great Depression. Giant US financial institutions such as Lehman Bros collapsed. Global player Citibank survived only because of a US government intervention. Around the world governments went to major banks and financial institutions for rescue.
Amidst the financial crises, Somare forsaking the advice from the Treasury Department, sold PNG to the Arabs!
Oil Search never closed at $8.55 during maturity, it closed at $8.49 and we could not repay the $1.7b mortgage, giving the IPIC the negotiating power to refuse the buyback and demand new terms. IPIC basically converted its bonds into shares and now holds 13% share in one of Papua New Guinea’s largest employer Oil Search.
To regain a footing in Oil Search, O’Neil approach UBS to fund a new 10% equity, this was to regain some degree of control in Oil Search and to ward off Woodside who wanted to buy Oil Search for $12billion.