Govt secures $3.1b loan to keep fuel and LNG flowing

Bangladesh has secured a $3.1 billion non-concessional loan to finance fuel oil and liquefied natural gas imports, as the government moves to safeguard energy supplies from disruption.

The Standing Committee on Non-Concessional Loan -- the body responsible for approving commercial-rate foreign borrowing -- formally approved the facility on Wednesday, according to finance ministry officials.

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The financing comes from the Jeddah-based International Islamic Trade Finance Corporation (ITFC), the trade-finance arm of the Islamic Development Bank Group.

The loan is split between the two state-owned energy companies. The Bangladesh Petroleum Corporation will use $2.5 billion to import fuel oil, while Petrobangla will use $600 million to purchase LNG.

The deal is structured as co-financing. ITFC will provide $600 million from its own resources, while Bangladesh Bank will provide the remaining $2.5 billion, or about 80 percent of the total.

The loan carries an interest rate of six-month term SOFR plus 1.70 percentage points, along with an annual administrative fee of 0.20 percent. Officials said the margin is 0.05 percentage points lower than last year’s.

Based on the six-month SOFR rate of 3.68 percent on October 1, the indicative interest rate is about 5.38 percent.

Each drawdown must be repaid in full in a single payment after six months. As the loan is expected to be rolled over at the end of each period, the central bank’s outstanding exposure would be about $195 million at any one time, according to a committee document.

The exposure could rise to a maximum of $1.25 billion if repayments were delayed.

To ensure uninterrupted fuel imports, the committee’s chair cleared the proposal on an urgent basis, following which the full committee approved it.

The two sides reached a preliminary agreement on the financing amounts at a negotiation meeting on June 29.

Bangladesh classifies a loan as non-concessional when its grant element -- a measure of how far its terms are softer than market rates -- falls below 25 percent.

Such loans face tighter scrutiny under the government’s debt rules, which cap annual debt servicing on this type of borrowing at the lower of 10 percent of export earnings or 15 percent of revenue.