Narrative
Full Description
Project narrative
In 2013, CNPC Finance (CPFHK) provided a loan to China National Petroleum Corporation (CNPC) to facilitate its acquisition of a 28.57% ownership stake in Eni East Africa from Eni S.p.A. (as captured via Record ID#105618). On July 26, 2013, Eni S.p.A. concluded its sale of 28.57% of its shares in Eni East Africa to China National Petroleum Corporation (CNPC). At the time of the sale, Eni East Africa was the owner of a 70% equity stake in the Area 4 Block, located off the coast of Mozambique. The deal was closed on the basis of the $4.21 billion price sanctioned by an agreement that the parties signed on March 14, 2013. Through the deal, CNPC acquired a stake in Eni East Africa which equated to a 20% indirect participation in the Area 4 Block. Then, on November 23, 2017, a syndicate of banks signed a $4.6575 billion facility (loan) agreement with Coral South FLNG DMCC13 — a special purpose vehicle that is registered in Dubai (the United Arab Emirates) and jointly owned by Eni Mozambique LNG Holdings B.V. (25%), ExxonMobil Africa and Middle East Holdings B.V. (25%), CNODC Mozambique B.V. (20%), ENH Floating LNG 1 S.A. (10%), GALP Mozambique (10%), and KOGAS Mozambique (10%) — for the Coral South Floating Liquefied Natural Gas Project. The members of the syndicate include Bank of China, ICBC, China Eximbank, China Development Bank, Credit Agricole, Sumitomo Mitsui Banking Corporation, Export-Import Bank of Korea, ABN Amro, BNP Paribas, HSBC, Korea Development Bank, Natixis, Societe Generale, Standard Bank, UBI Banca, and Unicredit. The facility has a 16 year maturity and an estimated grace period of 6 years (with initial repayments beginning in 2023). It consists of a $1.55 billion Sinosure-covered tranche, a Kexim direct loan of $510 million, a Kexim- and K-Sure-covered tranche (split $465.5 million and $800 million, respectively), a Bpifrance- and SACE-covered tranche (split $450 million and $700 million, respectively), and a $200 million uncovered tranche. The interest rate on the Sinosure-covered tranche (supported by China Eximbank, Bank of China and ICBC) is LIBOR plus 200 basis points, rising in steps to 400 basis points at maturity. The other covered tranches have pricing ranging from LIBOR plus 130-190 basis points. The Kexim and K-Sure tranche lenders include ABN Amro, BNP Paribas, Credit Agricole, Societe Generale, SMBC, HSBC, and Korea Development Bank. Their debt is priced at LIBOR plus 140 to 150 basis points as both ECAs provided comprehensive cover. The Bpifrance and SACE-covered tranche is priced at LIBOR plus 130 basis points rising to 190 basis points. The commercial lenders include Natixis, BNP Paribas, ABN Amro, Credit Agricole, Societe Generale, SMBC, HSBC, UBI Banca and UniCredit. SACE and Bpifrance also provided comprehensive cover. The small, $200 million uncovered tranche, which is priced at LIBOR plus 400 to 600 basis points, was led by Standard Bank. UniCredit, SMBC and Millennium BCP all took a piece of the riskier debt. The borrower purchased credit (political risk) insurance from Sinosure and agreed to a security package that included a project revenue account and a debt service reserve account (DSRA). Bank of China and China Eximbank each reportedly contributed $500 million to the lending syndicate, while ICBC reportedly contributed $550 million to the lending syndicate. Bank of China's contribution is captured via Record ID#57394, China Eximbank’s contribution is captured via Record ID#57399, and ICBC’s contribution is captured via Record ID#57395. The total cost of the Coral South Floating Liquefied Natural Gas Project was originally expected to be $8.8875 billion (financed with $4.6575 billion of debt and $4.212 billion of equity). However, it eventually increased to $10.5 billion. In order to finance its $585 million equity contribution to Coral South FLNG DMCC13, ENH Floating LNG 1 S.A. — a wholly owned subsidiary of Empresa Nacional de Hidrocarbonetos (ENH), which is a wholly state-owned energy company in Mozambique — secured shareholder loans from the other project sponsors (Coral South FLNG DMCC13 shareholders) in proportion to their equity stakes. These loans (which the IMF calls ‘equity debt’ and ENH calls ‘development carry’) have an estimated maturity of 25 years (2022-2047) and an 8.7% interest rate during the development/production phase. The estimated value of the shareholder loan from CNODC Mozambique B.V. — a wholly owned subsidiary of China National Petroleum Corporation (CNPC) — is $117 million (20% of $585 million). The loan from CNODC Mozambique B.V., captured via Record ID#105630, is structured such that ENH’s principal and interest payments are taken directly from LNG revenues once they start. 90 percent of ENH revenues (after the deduction of operating costs) will be use to pay its debts related to the project. 100 percent of ENH revenues will be used to repay any outstanding debt after 15 years, or when ENH’s debt level reaches a pre-determined trigger point. The Government of Mozambique did not issue a sovereign guarantee to ENH in support of the loans that it received from CNODC Mozambique B.V. and the other project shareholders to finance its 10% equity stake in Coral South FLNG DMCC13. In lieu of a sovereign guarantee, the project shareholders secured corporate guarantees and charged ENH an additional 7% fee (on ENH’s 10% equity stake in Coral South FLNG DMCC13) for these credit enhancements. The purpose of the project was to construct a Floating Liquefied Natural Gas (FLNG) facility off the shores of Mozambique (in the Area 4 Block) with integrated gas treatment, liquefaction, storage and offloading systems. Upon completion, the FLNG facility was expected to have 6 subsea wells that connect to a floating facility capable of producing 3.4 million tons per annum (mtpa). This project sought to monetize the gas discoveries contained in the southern part of the Area 4 Block. The Area 4 Block is located in the deep waters of the Rovuma Basin, which is located off the north-east coast of Mozambique. FLNG is a relatively new approach to exploiting offshore gas, and involves adapting existing LNG technology to an offshore, floating vessel. It makes the production, liquefaction and storage of natural gas possible at sea, unlocking gas resources from underwater gas fields previously considered uneconomic or too challenging to reach. An FLNG facility can also be re-deployed to other gas fields. In June 2017, the engineering, procurement, and construction (EPC) contract for the Coral South Floating Liquefied Natural Gas Project was awarded to a consortium of three companies: the UK's TechnipFMC, Japan's JGC Corporation, and Korea's Samsung Heavy Industries. Later that month, Eni S.p.A. gave a contract for supply of subsea production systems, equipment, and services to GE Oil & Gas, a subsidiary of U.S. firm General Electric. The Coral South (Coral Sul) Floating Liquefied Natural Gas (FLNG) Project officially commenced on June 2, 2017. Then, on July 20, 2019, Eni started installation works on the hull of the Coral Sul floating liquefied natural gas (FLNG) treatment and liquefaction unit that was to be moored offshore in Mozambique. Then, the launch of the terminal's hull took place in Geoje, South Korea in January 2020. At that time, the project had achieved a 60% completion rate and it was on track to achieve production startup in 2022. At the naming and sail away ceremony for the Coral Sul FLNG in November 2021, President Moon Jae-in of South Korea stated that the project would produce carbon-neutral LNG. Then, In March 2022, the Coral Sul FLNG moored at the project site. In June 2022, the commissioning of the Coral Sul FLNG began by safely achieving the introduction of natural gas from the Coral South reservoir into the treatment plant. In October 2022, the floating terminal began operations. BP contracted the entire output of Coral Sul for 20 years, having signed a free on board (FOB) contract with the project owners. Then, in November 2022, Eni, as the ‘Delegated Operator’ of the project on behalf of its Area 4 Partners announced that the first shipment of liquefied natural gas produced from the Coral gas field, in the ultra-deep waters of the Rovuma Basin, had departed from the Coral Sul FLNG facility. By 2021, there were some clear indications of the borrower (ENH) being in financial distress. According to a 2021 World Bank report, ‘[d]ue to the COVID-19 pandemic, ENH's portfolio has become more vulnerable. The analysis suggests that worsening financial conditions posed by the crisis will make it impossible for ENH to pay its carry (money it borrows from venture partners) from the Coral South FLNG without a cross-subsidy from the Rovuma LNG (the FID on the latter is still pending). In a scenario where the Rovuma LNG project does not move ahead […], ENH would end up with unpaid debt from the Coral South FLNG when the project reaches the end of its economic life (in 2047). This analysis suggests that ENH can no longer run Coral South FNLG as a ringfenced project. The pandemic's emerging impact stresses the need to evaluate other possible strategies to manage ENH's LNG portfolio, such as cross-subsidies and debt refinancing.’
Staff comments
1. The Chinese project title is 科拉尔气田浮式液化天然气项目 or 莫桑比克4号区块项目. 2. For the time being, AidData relies on the lending syndicate contributions from Bank of China ($500 million, ICBC ($550 million), and China Eximbank ($500 million) that are reported by IJGlobal. AidData was not able to identify an estimate of the size of China Development Bank’s contribution to the lending syndicate. However, Reuters reports that “Chinese banks” contributed $1.75 billion to the lending syndicate, so it is possible that China Development Bank provided the remaining $200 million. SAIS-CARI records the total contribution from Bank of China, ICBC, and China Eximbank as $150 million; however, this estimate appears to be an outlier. 3. Given that CNODC has an equity stake in the SPV (Coral South FLNG DMCC13) responsible for project implementation, AidData assumes that the Chinese Government has some degree of commercial motive and codes the intent variable as ‘mixed’. 4. AidData has coded this transaction as a collateralized loan because Standard Bank was selected as the security agent (i.e. collateral agent) for the loan. When lenders take collateral as security for their loans, a collateral/security agent is often appointed to enforce rights against the collateral in the event of the borrower’s default under the loan. 5. Coral South FLNG’s lenders had to embrace complexity on several levels. The project structure featured the upstream concession being held by a separate joint venture to the borrower that owned the floating LNG vessel. The project structure also included the provision for future projects and operators accessing the gas reserves from the same upstream concession. The financing structure had to account for oil price risk, since the LNG price is determined by a formula linked to crude oil price benchmarks, some advanced technology being used in an offshore application for the first time, the unique features of the single LNG offtake agreement, and support for the debt service undertaking provided by the local sponsor. A further challenge was introduced when the Government of Mozambique defaulted on two sovereign bonds, resulting in the suspension of support from the IMF and a downgrade of Mozambique’s sovereign credit rating by S&P and Fitch Group to CCC. The sovereign downgrade occurred just a few months before lenders sought their credit approvals. 6. AidData has estimated the grace period (5 years) of the loan by subtracting the commitment year (2017) from the first repayment year (2022). It has estimated the all-in interest rate by adding a 3% margin (the midpoint between the range of 200 to 400 basis points) to average 6-month LIBOR (1.62646%) in November 2017.