India’s Biggest LNG Buyer Seeks $1 Billion in Debt to Expand

Petronet LNG Ltd., India’s biggest buyer of liquefied natural gas, plans to raise about $1 billion in debt this year to expand its import capacity.

About $600 million will be used to build a new terminal on the east coast and $400 million to expand an existing facility on the west coast, Finance Director R.K. Garg said today in a telephone interview. He didn’t disclose whether the funds would be raised through loans or bonds.

Petronet, GAIL India Ltd., Korea Gas Corp. and Mitsubishi Corp. are among Asian companies seeking new sources of LNG at a time when projects in Australia, the U.S. and Canada need funding. The two Indian companies and Indian Oil Corp. are planning to build additional capacity to reconvert the fuel to gas from liquid as supply fades from the biggest domestic deposit, operated by Reliance Industries Ltd.

“The key will be the price at which Petronet is able to source the gas,” said Gagan Dixit, an analyst with Quant Broking Pvt. in Mumbai, who has a ‘buy’ recommendation for the stock. “Indian gas users are very sensitive to high prices and currently spot prices are pretty high.”

Japan, the world’s biggest LNG importer, paid more than $17 per million British thermal units in April, according to Ministry of Finance data. Natural gas in New York has declined 27 percent this year and traded 1.6 percent lower at $2.2 per million Btu as of 11:27 a.m. London time. Reliance Industries sells gas from India’s biggest deposit at $4.2 per million Btu.

Supply, Demand

“Supply of natural gas in India is far short of demand and it gives us a chance to benefit from that,” Garg said. “It isn’t likely that domestic supply of gas will be enough and increasing LNG imports is a way out.”

Petronet fell 1 percent to 132.90 rupees in Mumbai trading. The shares of the New Delhi-based company have declined 15 percent this year, compared with a 9 percent increase in the benchmark Sensitive Index.

Building a terminal at Gangavaram port in Andhra Pradesh state on the east coast will cost about $900 million, Garg said. The terminal will be capable of converting 5 million metric ton of LNG into gas annually and plant is slated to start by 2016, the company said May 2.

Expanding the Dahej facility in the western state of Gujarat to 15 million tons from 10 million tons will require about $600 million and start by the end of 2015, Garg said. These projects are typically 70 percent funded by debt.

Petronet plans to start another 5 million tons-a-year import plant at Kochi in south India at the end of this year, Garg said. Petronet will operate this plant with LNG bought from the spot market and under short-term contracts. It will also source 1.5 million tons of the fuel from Chevron Corp.’s Gorgon project in Australia from end-2013, he said.

Australia, Russia

Petronet is in talks with LNG suppliers in countries including Australia, Russia, the U.S. and Canada for long-term contracts, Garg said. The company is looking for a mix of more-expensive oil-linked contracts and cheaper gas-indexed supplies, he said.

“Besides the traditional suppliers in the Middle East, many more suppliers will come into the market soon,” Garg said. “We have the advantage of already operating in India and that stands us in good stead.”

A glut of natural gas production from shale rocks in the U.S. has turned that country into an exporter. About $180 billion of export projects are being constructed in Australia and enough of the fuel has been discovered in East Africa to justify exports to Asia.

Indian companies borrowed $3.5 billion in overseas loans this year, 62 percent lower than in the same period the previous year, according to data compiled by Bloomberg. Indian gross domestic product expanded 5.3 percent last quarter from a year earlier, the weakest pace since 2003.

The rupee’s 20 percent fall against the dollar in the past year makes it costlier for Indian companies to service overseas debt.

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