PetroVietnam has obtained 1 billion USD in financing for the Dung Quat Oil Refinery, the Ministry of Finance announced on Sept. 23.

The Vietnam Development Bank will co-ordinate the financing package, which includes 700 million USD from Government bond proceeds and the remainder from French bank BNP Paribas, which is extending credit for the deal through 2020 at an annual interest rate of 3.3 percent, following a four-year grace period.

PetroVietnam will borrow the bond proceeds for a 16-year term at a fixed interest rate of 3.6 percent, following four year's grace.

The ministry has authorised Citibank's Trust Agency in New York to collect interest on the 700 million USD loan made from Government bond proceeds, while the Ministry of Finance will make interest payments directly to BNP Paribas.

The financing will be allocated to the Dung Quat Oil Refinery Plant No 1, which began operating at 100 percent production capacity last month. The plant has imported 5.7 million tonnes of crude oil and processed nearly 5 million tonnes so far, delivering over 4.7 million tonnes of refined products to market.

In order to ensure repayment, Circular No 114/2010/TT-BTC issued by the ministry late Sept. 23 requires PetroVietnam to give highest priority to servicing the loans under this package. If it falls past due, the Ministry of Finance will require other lenders to freeze existing and further credit to the oil giant.

The ministry is preparing further risk-provision plans to ensure repayment of the 1 billion USD debt at maturity and is guaranteeing ultimate repayment from the State budget.

However, following the recent troubles of debt-laden shipbuilder Vinashin, PetroVietnam was expected to set an example as the best economic group in Vietnam.

Last week, the Government instructed the Ministry of Finance to consider Vinashin's request for 300 million USD in Government bond proceeds to service its debt to French bank Natixis.

If this proposal is approved, the 1 billion USD in capital raised by Vietnam's second overseas sale of Government bonds – offering higher yields than the lower-rated Philippines and Indonesia – would go to Vinashin and PetroVietnam.

The bonds were expected to offer a yield of 6.95 percent and a nominal interest rate of 6.75 percent.

The bond sale was originally conceived to provide capital for energy and infrastructure projects that would support growth in an economy suffering from a shortage of foreign exchange./.