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Allen & Overy in new oil deal for JBIC

Allen & Overy in new oil deal for JBIC

Petrobras, the Brazilian oil giant, signed contracts with a consortium of banks to construct new refining units in Brazil, at the Henrique Lage refinery in São José dos Campos, one of Petrobras’…

Petrobras, the Brazilian oil giant, signed contracts with a consortium of banks to construct new refining units in Brazil, at the Henrique Lage refinery in São José dos Campos, one of Petrobras’ newest and most important refineries. Construction work is due to begin in the second quarter of 2006, and the units are expected to start operating in the first quarter of 2009.

London-based international law practice Allen & Overy advised the senior lenders for the financing of the construction, comprising Japan Bank for International Cooperation (JBIC) and a syndicate of commercial banks led by Sumitomo Mitsui Banking Corporation, to the value of US$900 million ($1.2 billion).

The project involved the complex structuring of a loan to a Brazilian-incorporated company indirectly owned by Japan’s Mitsui & Co and Itochu Corporation to finance the construction, by Toyo Engineering, of new assets and machinery to be installed at the refinery. The project, says Allen & Overy, will not only ensure that Brazil’s refining capacity keeps pace with the country’s recent status of oil production self-sufficiency and increase the capacity for Petrobras to produce cleaner refined product, but also strengthens the existing close energy ties between Brazil and Japan.

JBIC uses Japanese government funds to invest in offshore projects, often in oil and gas producing areas in Latin America and the Middle East, with the long term aim of placing Japan in a beneficial situation in the future for energy.

The deal is the latest in a series of four Petrobras projects arranged by Japanese trading companies and financed with Japanese investment, in which Allen & Overy has advised JBIC. “Our firm has nearly ten years of acting for JBIC, and JBIC and Petrobras have a long history of collaboration too, so this was a very smooth transaction, almost a pleasure to work on,” said Allen & Overy lawyer in Tokyo David Miles.

In fact, after so many deals of the same sort, documentation had become bogged down, wordy and complex, said Miles. “Petrobras asked us to take the existing set of documents and clarify and simplify them. It was a good exercise, because as lawyers we sometimes forget that our role is relatively short-lived. Our clients have then 15 years or more where they have to read, understand and act on those documents. Sometimes they are just too unwieldy.”

The Allen & Overy team was led by Tokyo-based banking and project finance partner Aled Davies and senior associate David Miles.

Petrobras was advised by associate James Vickers at Clifford Chance in Sao Paolo, and associate Paul Epstein of New York firm Debevoise & Plimpton acted for Mitsui and Itochu.

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