CDB provides RMB 12 billion loan for Nakhodka Mineral Fertilizer Plant Project

Project narrative

In September 2018, China Development Bank (CDB) and Vnesheconombank (VEB) — a Russian state-owned development corporation — signed an RMB 12 billion loan agreement for the Nakhodka Mineral Fertilizer Plant Project. VEB then on-lent the proceeds of the loan to a special purpose vehicle called Nakhodka Mineral Fertilizer Plant Joint Stock Company (纳霍德卡矿物肥料工厂股份公 or АО «Находкинский завод минеральных удобрений»). The borrowing terms of the loan are unknown. However, it is known that the proceeds of the CDB loan were to be used by the borrower to finance a $1.479 billion (RMB 9.91 billion) commercial (EPC) contract with China Chengda Engineering Co. Ltd., which was signed on June 5, 2019. The total cost of the project is approximately $6.3 billion. It is being financed as a limited recourse project finance transaction according to a debt-to-equity ratio of 80:20. Other lenders include VTB Bank and the Russian Government’s Far East Development Fund (which provided at RUB 7 billion loan in 2019 with an annual interest rate of 5%). The purpose of the project is to construct a methanol and fertilizer production facility in the city of Nakhodka (in Primorsky Krai) with the capacity to produce 1.8 million tons of methanol, 2.2 million tons of ammonia, and 2 million tons of carbamide each year. The project site is located near the gas pipeline system of Gazprom, stretching from the gas fields from Sakhalin Island’s fields. (Note: In 2015, Gazprom Mezhregiongaz and National Chemical Group signed a 20 year contract to supply 3.15 bcm of natural gas per year for the Nakhodka Mineral Fertilizer Plant.) China Chengda Engineering Co. Ltd.— a subsidiary of China National Chemical Engineering Group Co., Ltd. (CNCEC) — is the EPC contractor responsible for implementation. China National Chemical Engineering No. 16 Construction Co., Ltd. (CNCEC16 or 中国化学工程第十六建设公司) — a subsidiary of CNCEC — is also involved in implementation. CBI and GAZTECHMONTAZH are two additional subcontractors involved in the project. The project was originally expected to launch in December 2019. However, members of the loan syndicate did not disburse funding until January 29, 2020. Then, the start of site preparation began in April 2020. A formal groundbreaking ceremony took place on October 2, 2020. The fertilizer plant’s first unit was put into operation on April 12, 2021. The first batch of the gas pipes were set to arrive by rail in mid-October 2021 (with 71 rail wagons bringing 5 km of the gas pipeline to Primorye). The project was originally expected to reach completion at the end of 2023 and create more than 1500 new high-skilled jobs in the Primorie Territory.