Angola has cut the number of oil cargoes that it will ship to Chinese state firms to pay down debt to Beijing as it seeks to renegotiate repayment terms to deal with the crippling impact of the coronavirus, three sources familiar with the matter said.
Angola said this week it had asked for G20 debt relief and was in advanced talks with some countries importing its oil on adjusting financing facilities, but expects no further debt overhaul to be needed beyond this.
The sharp global economic slowdown due to the novel coronavirus pandemic pushed Brent oil prices to their lowest levels since the late 1990s and U.S. oil futures to negative territory for the first time in history.
The price drop has put heavily-indebted Angola into a fragile state as it derives a third of state revenues from oil.
By far, its biggest creditor is China. Analysts say Angola has over $20 billion in bilateral debt with the lion’s share owed to China. Much of the cash was borrowed to build roads, hospitals, houses and railways across the southern African country.
On top of its Chinese debt, Luanda secured a $3.7 billion loan from the International Monetary Fund last year and state oil firm Sonangol has borrowed $2.5 billion from banks between end-2018 and mid-2019, the IMF said.
A global oil output cut deal led by the Organization of the Petroleum Exporting Countries (OPEC) has added to Luanda’s woes.
As an OPEC member, Angola was pressured to cut oil exports starting from May. The result has left the country with fewer and lower-value cargoes to split between paying off its Chinese debt and filling its depleted coffers.
The sources said that China’s state-owned Sinochem would receive five cargoes in July, down from the usual seven or eight, while the trading arm of Chinese giant Sinopec called Unipec would receive none.
Unipec typically receives two to three cargoes earmarked as debt repayment.
Sonangol, Angola’s finance ministry, Sinopec and Sinochem did not immediately respond to requests for comment.
China’s foreign ministry said on Wednesday that the relevant departments were in contact with Angola over its request for debt relief.
“These oil-backed loans create stronger interdependence (between lender and borrower) than traditional financing. This tactic of diverting cargoes is not new as seen elsewhere,” David Mihalyi, a senior economic analyst with the Natural Resource Governance Institute, said.
Chad threatened to cut repayment cargoes to commodities trader and miner Glencore during a major loan restructuring in 2017. Similarly, Congo Republic has cut many repayment oil cargoes to Glencore and commodities trader Trafigura as discussions drag.
Angola is not the only African country heavily indebted to China. The IMF and ratings agency Moody’s have raised concerns about debt levels in sub-Saharan Africa particularly with China.