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(Bloomberg) -- Talks between Chad, Glencore Plc and a group of banks to restructure more than $1 billion in debt have stalled after the African nation rejected the commodities trader’s latest proposal to delay repayment of an oil-for-cash loan, according to people familiar with the negotiations.

The negotiations reached a stalemate after five months of on-and-off talks, with both sides rejecting the other’s offers and counter offers, said the people, who asked not to be identified because the discussions are private.

Chad needs a deal -- a second restructuring of its oil debt in less than two years -- to avoid a looming financial crunch as it diverts more oil shipments to repay the debt. The country is in “debt distress” and the borrowings would be unsustainable without restructuring, the International Monetary Fund said in August.

The nation has kept up to date with its obligations so far, but the risk of a default is increasing, the people said.  

The talks pit the world’s largest commodities trader, with co-lenders including Citigroup Inc., Deutsche Bank AG, Natixis SA and Societe Generale SA, against one of the world’s poorest nations. The stalemate highlights the risk that the Glencore-led syndicate took lending the landlocked African country the equivalent of almost 15 percent of its GDP to be repaid via future crude oil cargoes.

Chad, with few sources of foreign exchange other than oil, is one of the most underdeveloped countries in the world, ranking 186th out of 188 in the United Nations Human Development Index.

Grace Period

Glencore earlier this month proposed a plan that would allow the country to delay full repayment to eight years from five currently and offered a grace period on the principal in 2018, together with easier payment terms in 2019, the people said. However, Chad had asked for a longer grace period and maturity and rejected the proposal. 

Glencore reiterated its offer in a letter dated Nov. 14, but the African country doesn’t plan to accept it. Further "unfair clauses in this toxic contract" needed to be reviewed, said Guillaume Foucault, a spokesman for Chad’s national oil company, which is part of the negotiations. Among other changes, Chad is seeking a further cut in the reduced interest rate that has been offered by Glencore and its partners, Foucault said.

Glencore declined to comment.

In the letter to Chad’s finance ministry, Glencore complained of "growing frustration of how the negotiations were conducted by your advisers." Chad hired banker Rothschild & Cie earlier this year to advise it on the restructuring. Rothschild was not immediately available to comment, said a spokeswoman for the bank.

In the letter, seen by Bloomberg News, Glencore also accused Chad of a "blatant breach of agreement" by diverting crude flows away from repaying the debt.

Details of the letter were published earlier by Reuters.

Minister Fired

The debt talks will be further complicated after Chadian president Idriss Deby, who criticized the oil-for-cash loans in June, last week fired Finance Minister Christian Diguimbaye, who was conducting the negotiations personally in Paris. The ex-minister in July said rescheduling the loans was “an absolute necessity.”

Glencore and its banks agreed in late 2015 to restructure two oil-for-cash loans with Chad, dating from 2013 and 2014, extending the repayment to seven years from an initial four years. Glencore initially lent the African country $600 million in 2013 through a so-called pre-payment export deal, in which a nation receives an advance on its oil sales and repays the debt by allocating crude cargoes to its creditors. 

Chad received a second advance on oil sales of $1.4 billion from Glencore in 2014 to help finance state-owned Societe des Hydrocarbures du Tchad’s acquisition of the stake held by Chevron Corp. in the country’s oil industry. Chad has already paid some of those debts, but more than $1 billion remains outstanding.

According to the IMF, last year Chad devoted the majority of the proceeds of selling the oil owned by the government to repay the Glencore-led loans. Out of $271 million in oil sales revenues, debt service took $231 million, leaving only $40 million to the country’s treasury. The cost of servicing the debt will increase now as the grace period on the principal of the debt has expired. 

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director of Glencore.

(Updates with former minister’s comment in paragraph after Minister Fired sub-headline.)

To contact the reporters on this story: Daniel N'doh Nadjitan in N'Djamena at nnadjitan@bloomberg.net, Tom Wilson in London at twilson128@bloomberg.net, Javier Blas in London at jblas3@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Liezel Hill, Nicholas Larkin

©2017 Bloomberg L.P.

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