Russia LNG Plant Gets $12 Billion From China Amid Sanctions

  • Yamal LNG signed 15-year loan accords with 2 Chinese banks
  • Gas project has secured required external funding now, it says

Russia’s Yamal LNG, the biggest project to produce liquefied natural gas in the Arctic, signed loan agreements with two Chinese banks after more than a year of discussions with its majority shareholder targeted by U.S. sanctions.

The accords signed with the Export-Import Bank of China and the China Development Bank Corp. are for two 15-year credit line facilities for 9.3 billion euros ($10.6 billion) and 9.8 billion yuan ($1.5 billion), Yamal LNG said in an e-mailed statement Friday. Novatek OJSC, Russia’s second-biggest natural gas producer, holds a 50.1 percent stake in Yamal LNG.

The agreements “allow to complete the project without additional funding by the shareholders,” the company’s General Director Evgeniy Kot said in the statement. All the required external financing is now secured.

The $27 billion Yamal development has pushed ahead amid concerns that U.S. sanctions limiting financing may derail its attempts to borrow. The measures were levied after Russia annexed Crimea and supported a separatist insurgency in Eastern Ukraine.

Yamal LNG aims to produce as much as 16.5 million metric tons of LNG per year from late 2017 even after a slump in oil prices and surplus gas supply dragged down prices. The venture also operates a gas field near the plant with 926 billion cubic meters in reserves. Total SA and China National Petroleum Corp. each hold 20 percent, and China’s Silk Road Fund has 9.9 percent.

“The deal has been long awaited by the market,” said Alexander Kornilov, a Moscow-based analyst at Aton LLC. The financing removes implementation risks to Novatek’s largest endeavor.

Shareholders Paying

Novatek has been in talks with lenders since 2014, planning to cover about 65 percent of costs on the development with long-term loans taken by the venture itself. Yamal LNG’s shareholders have invested directly about $13 billion since then.

About $6.4 billion more of external financing was secured in Russia, with 150 billion rubles ($2.3 billion) provided by the National Wellbeing Fund last year and 3.6 billion euros agreed on with the state-run Sberbank PJSC and Gazprombank JSC this month.

The Chinese loan in euros will pay interest at the six-month euro interbank offered rate plus a margin of 330 basis points, or 3.3 percentage points, at the construction stage. The margin increases to 355 basis points after the Yamal LNG is fully commissioned, the company said. The renminbi facility is at the six-month Shanghai interbank offered rate with the same margins. China Development Bank will cover 54 percent of the facility in both currencies, Yamal LNG said in a regulatory filing.

The company may get the money after May as there are some “technical issues” related to the credit documentation, Novatek Chief Executive Officer Leonid Mikhelson said Tuesday.

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