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Deadline looms for funding Project

Dodgy deals
By Finance International | , Nov 4 2009

ExxonMobil and its partners in the US$15bn LNG project have secured about US$2bn from commercial banks for an uncovered tranche of the financing, but the ECA funding that will provide the bulk of the finance has yet to be put in place.

The sponsor is hoping that ECAs such as the US Ex-Im, JBIC/NEXI, KEIC/Kexim, Sace and EFIC will provide some if not all of the funding. This will partly depend on which EPC contractor is selected and this decision is due very soon. It is a straight battle between Bechtel from the US, with US Ex-Im support, and Chiyoda from Japan, with extra Japanese support.

The last funding plan shows multilateral direct loans of US$2.5bn to US$4.5bn; covered ECA loans of US$2bn to US$3.5bn; commercial bank debt of US$1bn to US$3bn; capital markets funding of up to US$3bn; and the Exxon shareholder loan of up to US$3.7bn. But an unexpected 15% rise in costs to US$15bn has added extra funding pressure.

ExxonMobil is not commenting at this stage but the approval process ahead of the December 8 FID deadline is clearly a concern. Last Friday, Japan Bank of International Cooperation indicated that the due diligence for its funding of the PNG government's equity in the project was continuing but couldn't be sure it would meet the deadline. However Exxon has the capacity to fund the gap through shareholder loans.

The bank bookbuilding for the uncovered tranche of the financing has attracted about 18 banks willing to commit some US$2bn. Chinese banks are said to have put for in big tickets given that the scheme will export LNG to China.

It is doubtful whether Barclays will be able to get an investment-grade rating on the US$2bn-plus bond issue, unless extra sponsor supports are added. Earlier this year, ratings agencies visited the site but came away doubtful that the project would receive an investment-grade rating. PNG projects of any kind inevitably experience sovereign risk problems of one sort or another. One subtext is that some banks bid on the commercial bank tranche hoping to get a role on the bond underwriting.

A positive for the project in securing further finance is that the Chinese government is expected to sign the last of the offtake agreements by next week so that all the gas produced is committed.

The tight funding deadline has also affected ExxonMobil's partner, which was forced to go to shareholders for about A$900m to fund its LNG share rather than wait for the 3.5% equity sale of its project interest to Abu Dhabi's investment arm IPIC.

The bookbuilding for the bank finance has so far attracted ANZ, CBA, NAB, Westpac, BTMU, Mizuho, Sumitomo, Standard Chartered, BNP Paribas, Calyon, Credit Industrial et Commercial, Intesa Sanpaolo, UniCredit, SG, Natixis, DnB Nord and China Development Bank.

The bank facility will pay margins of 325bp over Libor during the 5-1/2 year construction period, 400bp for the first 4-1/2 years of operations and 425bp for the next five years of operations. This tranche of the finance will be uncovered. Front-end fees are 260bp for more than US$175m, 230bp for more than US$150m to US$175m, 200bp for US$75m to US$150m and 175bp for less than US$75m.

ExxonMobil is hoping for at least a further US$2.5bn in loans guaranteed by export credit agencies Export-Import Bank of the US, Italy's SACE and Japan's Nippon Export and Investment Insurance. The sponsors are offering loan margins of 150bp over Libor for the US-Ex-Im guaranteed tranche, 165bp over Libor for the SACE-guaranteed tranche and 175bp for the NEXI-guaranteed tranche during the construction phase.

This will rise during the operating phase to 165bp over Libor for the US-Ex-Im tranche, 185bp over Libor for the SACE tranche and 190bp over Libor for the NEXI tranche. The sponsors are offering to pay a commitment fee of 50% of the respective margins.

source: Finance International


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