Fitch: Yamal LNG $12bl finance deal reduces risks of delays

The Yamal LNG project finance deal with major Chinese banks has reduced the likelihood of significant project delays, and further capital injections from the project partners are much less likely to be needed, according to Fitch Ratings.

Novatek-operated giant Yamal LNG project in Russia has last week secured a loan from Export-Import Bank of China and the China Development Bank worth more than US$12 billion.

“The announced Yamal LNG project finance deal with major Chinese banks clears the last major hurdle for the project and is credit-positive for Yamal LNG’s shareholders, including Novatek and Total,” Fitch Rating said in a release on Tuesday.

Together with more than $12bn already invested by the partners, and the previously announced deals, including funds borrowed from the Russian state-affiliated banks ($4.1bn) and the Russian Welfare Fund ($2.4bn), Fitch said it expects the lines to be “more than enough” to cover the project’s USD27bn capex needs.

Novatek, which owns a 51% stake in the 16.5 mtpa LNG project, expects the first train of the project to come on-line in the second quarter of 2017. Other project partners are France’s Total and China National Petroleum Corporation (CNPC) with a 20% stake each, and China’s Silk Road Fund (9.9%).

“The $12.1bn deal has cemented the status of China as a major lender to Russian energy companies after their funding options were significantly reduced since mid-2014 on the back of western sanctions and political tensions between Russia and the west,” the credit agency said.

Over the last two years, the Chinese banks granted Russia’s Gazprom two loans for a total amount of around $3.7bn. But the clear leader is Rosneft, which attracted tens of billion dollars in long-term oil supply prepayments from CNPC, Fitch said.

“At the same time, the Yamal LNG funding took longer than originally assumed to finalise, underlining our view that the Chinese may be tough negotiators and are therefore unlikely to fully replace western investors over the long term. They also tend to lend to projects where Chinese companies have an interest, a condition some potential borrowers may find difficult to satisfy,” Fitch said.

According to Fitch, Yamal LNG should transform Novatek’s business profile by significantly increasing the company’s scale of operations, and by providing diversification into LNG production.

The project is also an important part of Total’s upstream growth strategy, and should help the company achieve its aim of boosting upstream production to 2.7 million barrels per day (including equity affiliates) by 2019 from 2.3 million in 2015.

Being Russia’s second LNG project, Yamal LNG is also set to take Russia to the league of largest global LNG producers, increasing the country’s capacity to 26.5mtpa from the current 10mtpa, or 11% of 2015 global LNG production, Fitch added.