A A$1.2 billion ($881 million) loan from UBS to the state of Papua New Guinea is under the microscope of a Royal Commission there, in which the Swiss bank is accused of earning excessive profits in an unnecessarily complicated deal.
The case goes back to 2014 when the PNG government opted to purchase a 10.01% stake in Oil Search, an oil and gas exploration and development company that is incorporated in Papua New Guinea and operates all of PNG’s oil fields, but is listed on the ASX in Sydney.
The total transaction cost was A$1.225 billion for 149 million new shares at A$8.20 apiece and was financed through two loans from UBS.
One was a collar loan, under the terms of which the state would pay back A$1.011 billion after two years. This loan was collateralized by 137 million Oil Search shares. The other was a six-month bridge loan of A$335 million, extendable to one year, collateralized by 12 million Oil Search shares.
All told, UBS lent A$1.346 billion, but PNG received A$1.225 billion, because of $107 million in pre-paid interest and A$15 million in fees, A$13 million of it to UBS.
