Reuters: Financing for Russia's Yamal LNG Plant Stalls

October 20, 2015

Efforts to secure financing for Russia's Yamal LNG plant have stalled, with the owners baulking at costly Chinese loans and Western sanctions hampering alternatives, two Russian banking sources said, warning the search could drag into next year.

The quest to bankroll the $27 billion project ahead of a planned 2017 launch is seen as a test of Russia's ability to secure foreign loans at a time when the country's access to capital markets is severely limited by Western sanctions over its involvement in the conflict in eastern Ukraine.

The lead Russian company in the project -- Novatek , Russia's largest private gas producer -- is under U.S. sanctions, making it harder for it to find cash for an export project that envisages three liquefied natural gas (LNG) production lines with a capacity of 5.5 million tonnes a year each. 

Novatek has a 50.1 percent stake in what will be only Russia's second LNG plant. France's Total and China's CNPC hold 20 percent each. And last month, Novatek agreed to sell a 9.9 percent stake to the China Silk Road Fund.

Originally, Novatek, where a close ally of President Vladimir Putin, Gennady Timchenko, is a co-owner, had expected to raise up to $20 billion from Chinese banks, with the first funds expected by the end of 2014.

But two Russian banking sources, who declined to be named, told Reuters they saw little movement on a deal for now.

One of the sources said that Yamal LNG was not happy with earlier offers from the banks and had been forced to relaunch the bidding process.

"Chinese money is expensive, so Novatek and Total would like European banks to take on the larger share of financing which is complicated by sanctions," the source said.

He said it was unclear whether the loans would be provided by the end of the year.

"There is no movement at the moment," another source said. "Of course, everything could be done in the course of one night ... but so far it looks unlikely that there will be anything before the year-end."

Copyright 2015. Reuters