Blackstone, Brookfield and KKR just convinced Kuwait to sell them an oil pipeline for $16 billion under a lease-and-leaseback structure. Kuwait gets cash now. The three firms get to collect tariffs for 20.5 years. Then Kuwait gets the pipeline back.
Kuwait already owned the pipeline.
This is the financial equivalent of pawning your watch and then paying rent to wear it. Except the watch pumps crude oil and three private equity giants are the pawnshop. The volume-based tariff means Kuwait pays more when they move more oil through their own infrastructure. Brilliant.
Private equity firms love these deals because they get predictable cash flows backed by actual physical assets that people need to use. Governments love these deals because they get to pretend they didn't just take on debt while simultaneously taking on debt. It's a sale that's not a sale. It's a lease that's also a leaseback. The structure has more layers than a retail trader's excuse for why he's still holding GameStop.
Kuwait Oil will now spend two decades paying rent on pipes they used to own outright. The three firms will collect fees every time oil moves through metal tubes sitting in Kuwaiti sand. In 2047, assuming the world still needs oil and hasn't figured out how to run Priuses on smugness alone, Kuwait gets the pipes back.
Everyone involved will call this innovative financing. Institutional investors will nod approvingly at the inflation-protected returns. Analysts will publish reports praising the deal structure. Nobody will say what this actually is: a payday loan for a country sitting on 6% of the world's oil reserves.
Twenty point five years to rent your own plumbing. That's not a deal. That's a f*cking intervention.
Photo by on Unsplash
Leave a Comment