Nr. dodgy deals
Melbourne, Australia, Jul 30 2009
By Sharon Klyne
MELBOURNE, July 30 (Reuters Basis Point) - Sponsors of a $16.5 billion-plus liquefied natural gas project in Papua New Guinea are seeking $2 billion in project finance bank debt to partially fund the deal, banking sources said.
The sponsors are proposing a 15-year deal, comprising a five-year construction phase and a 10-year pre-completion phase. The average life after completion is 7.75 years.
The loan will not have any political risk coverage, the sources said.
Project financing is just one part of an $11.7 billion multi-sourced senior debt package needed to fund the project, expected to be the largest oil and gas project in the Asia Pacific region when completed.
"The project is seeking to raise approximately $11 Billion in debt financing and anticipates a final investment decision will be taken in late 2009 with a corresponding first LNG cargo targeted for late 2013/early 2014," said a spokesperson for the project.
In addition to the project financing deal, the sponsors are planning to raise up to $2 billion in bonds and $4.2 billion from export credit agencies in the form of direct loans or guarantees.
Lead sponsor Exxon Mobil Corp will provide a $3.5 billion loan which will rank equally with the other creditors.
The other partners in the project are Oil Search Ltd, Nippon Oil Corp., and PNG landowners.
The sponsors are hoping to get an investment grade rating for the project finance bond as there is little investor appetite for non-investment grade stand-alone project bonds, one of the sources said.
The sponsors are kicking off a global roadshow with potential lenders in London on Aug. 3, with stops scheduled for Beijing, Tokyo and Sydney later in the week. Some 40 banks and institutions are said to have been invited to the presentations.
In addition to the debt needed to fund the project, the sponsors will also need to invest an extra $5 billion based on a 70:30 debt-to-equity ratio.
The sponsors are aiming to reach financial close by Dec. 15 2009, with first gas expected by the end of 2013 or early 2014. SG is the sponsors' financial adviser.
Early works on the project are underway, including road upgrades and repairs, the construction of camps, wharf upgrades and early site preparation. The works are expected to cost about $600 million.
Gas sales are moving ahead with China Petroleum & Chemical Corp (Sinopec) recently signing an offtake agreement for 2 million tonnes per annum (tpa) of the LNG produced by the project.
The sponsors are also in talks to secure sales from South Korea's Korea Gas Corp and Japanese electricity companies.
The project is expected to produce 6.3 million tonnes of LNG a year. The sponsors have indicated that they are finalising terms of sale for the other 4.3 million tpa to Asian buyers.
The project will replace a proposed upstream project to pipe gas from Papua New Guinea to Queensland, which was abandoned in 2006 due to insufficient customer demand.
(Editing by James Thornhill)
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