CDB provides EUR 5.057 billion loan for Yamal Liquefied Natural Gas (LNG) Project (Euro-denominated tranche) (Linked to Record ID#67063, #67062, #67041, and #67040)

Project narrative

On September 5, 2013, OAO NOVATEK and CNPC signed an agreement that allowed CNPC to purchase a 20% equity stake in OAO Yamal LNG (or JSC Yamal LNG or ОАО "Ямал СПГ") from OAO NOVATEK. Under a May 2014 offtake contract, CNPC agreed to buy 3 million tons per year (tpa) of liquefied natural gas (LNG) from OAO Yamal LNG over a period of 20 years. Then, on September 3, 2015, OAO NOVATEK agreed to sell its 9.9% equity stake in OAO Yamal LNG to Silk Road Fund. On April 11, 2016, China Development Bank (CDB) and China Eximbank signed a syndicated facility (loan) agreement with OAO Yamal LNG—a special purpose vehicle and joint venture of Russia’s OAO NOVATEK (50.1% ownership stake), France's Total S.A. (20% ownership stake), and China's CNPC (20% ownership stake) and Silk Road Fund (9.9% ownership stake)—for the Yamal Liquefied Natural Gas (LNG) Project. The facility agreement was amended on April 29, 2016. The financing from CDB and China Eximbank was part of the project finance package totaling the equivalent of $18.4 billion. The total cost of the project was approximately $36 billion and it was financed with a mix of debt and equity. The project reached financial close with CDB and China Eximbank in June 2016. CDB issued both euro-denominated and RMB-denominated loans in support of this project. The euro-denominated loan tranche (captured via Record ID#67064) was worth EUR 5,057,800,000 and its interest rate was EURIBOR (-0.141%, April 2016) plus 330 basis points during the pre-completion stage and EURIBOR plus 355 basis points during the post-completion stage. It also carried a maturity of 15.166 years (final maturity date: June 15, 2031), a grace period of 3.66 years, (first repayment date December 15, 2019), a 2% management fee, a 1.5% commitment fee, and a default (penalty) interest rate was 1.5%. The RMB-denominated loan tranche (captured via Record ID#67063) was worth RMB 5,286,000,000 and its interest rate was EURIBOR plus 330 basis points during the pre-completion stage (-0.141%, April 2016) and EURIBOR plus 355 basis points during the post-completion stage. It also carried a maturity of 15.166 years (final maturity date: June 15, 2031), a grace period of 3.66 years, (first repayment date December 15, 2019), a 2% management fee, a 1.5% commitment fee, and a default (penalty) interest rate was 1.5%. China Eximbank provided both euro-denominated and RMB-denominated loans in support of this project. The euro-denominated loan tranche (captured via Record ID#67062) was worth EUR 4,279,700,000 and its interest rate was EURIBOR (-0.141%, April 2016) plus 330 basis points during the pre-completion stage and EURIBOR plus 355 basis points during the post-completion stage. It also carried a maturity of 15.166 years (final maturity date: June 15, 2031), a grace period of 3.66 years, (first repayment date December 15, 2019), a 2% management fee, a 1.5% commitment fee, and a default (penalty) interest rate was 1.5%. The RMB-denominated loan tranche (captured via Record ID#67041) was worth RMB 4,472,500,000 and its interest rate was EURIBOR plus 330 basis points during the pre-completion stage (-0.141%, April 2016) and EURIBOR plus 355 basis points during the post-completion stage. It also carried a maturity of 15.166 years (final maturity date: June 15, 2031), a grace period of 3.66 years, (first repayment date December 15, 2019), a 2% management fee, a 1.5% commitment fee, and a default (penalty) interest rate was 1.5%. Under an accounts agreement, the borrower, Yamal Trade Pte. Ltd (a permitted subsidiary and guarantor of the borrower's obligations), and OOO Sabetta Internal Airport (a permitted subsidiary and guarantor of the borrower's obligations) were required to open and maintain specific bank accounts in the account banks specified in the accounts agreement and use them in accordance with the terms and priority of payments set out in the accounts agreement. In July 2016, OAO Yamal LNG withdrew a combined EUR 450 million from the euro-dominated facilities of CDB and China Eximbank. The individual amounts withdrawn from each facility are unknown. The Yamal Liquefied Natural Gas (LNG) Project was also financed with a $3.069 billion loan (with a 15 year maturity) from Sberbank, a $1.023 billion loan (with a 15 year maturity) from Gazprombank, a Sinosure-insured EUR 730 million loan (with a 15 year maturity, a 4 year grace period, and semi-annual principal payments between December 2019 and December 2030) from the Silk Road Fund (captured via Record ID#67040), an equity contribution worth EUR 1.087 billion from the Silk Road Fund (captured via Record ID#67068), and an equity contributions from the various shareholders in OAO Yamal LNG. CNPC apparently made its equity contribution in part by providing a shareholder loan to OAO Yamal LNG via CNPC Capital Co. Ltd. (中国石油集团资本股份有限公司 or 中油资本). The principal amount outstanding under the shareholder loan from CNPC Capital Co. Ltd. was $1 billion (RMB 6.863 billion) as of 2018. The project involved the construction of a liquefied natural gas (LNG) plant — with 3 liquefaction trains and an annual production capacity of 16.5 million tons per annum based on the feedstock resources of the South-Tambeyskoye field — located in Sabetta at the north-east of the Yamal Peninsula. In addition to the LNG plant, the project included production at the Yuzhno-Tambeyskoye gas field, and the transport infrastructure, including the Sabetta seaport and airport. The Sabetta port is strategically located on the west bank of the Ob Bay, on the north-east of the Yamal Peninsula in the Yamal-Nenets Autonomous Okrug (YNAO). Its construction was designed to allow Novatek — Russia's second-largest (private) natural gas producer — to boost its exports to China and other Asian countries to compete with Russia’s number one gas producer Gazprom. Technip France (France) and JGC Corporation (Japan), acting as one consortium, were the EPC contractors responsible for implementation. They are among the leading international engineering and construction companies with vast experience in front-end engineering design and execution of engineering, procurement and construction contracts for LNG plants worldwide. One of their subcontractors was China National Petroleum Corporation (CNPC). A groundbreaking ceremony for the Sabetta seaport was held on or around July 23, 2012; however, construction of the seaport did not begin until 2013. Despite the fact that the Russian government does not have an ownership stake in the borrowing institution (JSC Yamal LNG), when the project stalled in 2015 because of Western sanctions on Novatek, the Russian government quietly injected 150 billion rubles (approximately EUR 2.1 billion) into JSC Yamal LNG by tapping its rainy-day fund (the so-called “National Wealth Fund”). The Russian government never provided an explicit justification for the bailout, but Leonid Michelson and Gennady Timchenko are major shareholders of Novatek and personal friends of Vladimir Putin. As of April 2016, construction of the LNG plant was 65% complete. LNG production began on December 5, 2016. Then, on December 8, 2017, the commercial operation of the port and first LNG train (LNG purification facility) were launched by starting loading the first LNG carrier named after the late CEO of Total Christophe de Margerie. The loading was ceremonially launched by president Vladimir Putin in the presence of Saudi Arabia's energy minister Khalid al-Falih. Then, in August 2018, the second production line (liquefaction train) of the LNG plant was launched. In November 2018, the third production line (liquefaction train) of the LNG plant was launched. Yamal LNG has commissioned 15 LNG icebreaker/tanker ships to export its gas. Each icebreaker/tanker is designed to operate year-round from the Yamal peninsula and to break ice up to 2.5 meters thick. The ships are leased by Yamal LNG from four companies: Sovcomflot, one ship; MOL, three ships; Dynagas, five ships; and Teekay, six ships. The tankers were designed in Finland by Aker Arctic Technology Inc. and built at the Daewoo Shipbuilding & Marine Engineering (DSME) shipyard in South Korea. The first icebreaker, Christophe de Margerie, traversed from Norway to South Korea across the Northern Sea Route in 19 days in August 2017. When ice precludes shipping along the Northern Sea Route, then the Fluxys terminal at Zeebrugge, Belgium, will serve Russia as the LNG port for the Asia-Pacific region. Following the September 14, 2019 attack by Iran on Saudi Arabian oil fields at Khurais and Abqaiq (Biqayq in Arabic) during the 2019–2021 Persian Gulf crisis, the United States Government imposed sanctions under executive order 13846 against several companies including Cosco Shipping Tanker (Dalian) Seaman and Ship Management Company Ltd and the Cosco Shipping Tanker Dalian (大連中遠海運油品運輸有限公司) which are two Cosco Shipping Company subsidiaries that are supporting LNG shipments from Sabetta. As of late September 2019, the Joint Venture TC LNG between the Cosco Shipping Tanker Dalian company (50% stake) and the Canadian firm Teekay is the China LNG Shipping Ltd (CLNG) which has more than one third of Sabetta's LNG ice fleet, six ARC7 LNG tankers: Eduard Toll (Russian: «Эдуард Толль»), Rudolf Samoilovich (Russian: «Рудольф Самойлович»), Nikolay Evgenov (Russian: «Николай Евгенов»), Vladimir Voronin (Russian: «Владимир Воронин») all of which are operating, Georgy Ushakov (Russian: «Георгий Ушаков») which is going to Sabetta after sea trials, and Yakov Gakkel (Russian: «Яков Гаккель») which is under sea trials at a South Korean shipyard. Also affected were five ARC7 tankers which Dynagas will supply in a partnership between Sinotrans&CSC and CLNG (25.5% stake), as well as three ARC7 tankers from a joint venture between the Cosco subsidiary Shanghai LNG and Japan's MOL (株式会社商船三井). However, these former five and later three ARC7 tankers were not directly sanctioned but US Office of Foreign Assets Control (OFAC) rules require caution to be exercised in the former. Of the fifteen ARC7 tankers operating out of Sabetta, only Sovcomflot's Christophe de Margerie was not affected by the sanctions. Although these ships had been serviced at Honningsvåg, Norway, this was to be phased out and future LNG tanker shipments along the Northern Sea Route may occur between Murmansk and Kamchatka in Russia coastal waters. On January 30, 2020, the United States Government lifted sanctions on Cosco Shipping Tanker (Dalian) and its TC LNG. There are some indications that Yamal LNG Project may have financially underperformed vis-a-vis the original expectations of its lenders. In February 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Directive 3 Under Executive Order 14024, which prohibited U.S. persons from engaging in all transactions in, provision of financing for, and other dealings in new debt of greater than 14 days maturity and new equity issued by 13 Russian state-owned enterprises and entities, as well as their subsidiaries, on or after March 26, 2022. The entities included Transneft, Sberbank, AlfaBank, Credit Bank of Moscow, Gazprombank, Russian Agricultural Bank, Gazprom, Gazprom Neft, Rostelecom, RusHydro, Alrosa, Sovcomflot, and Russian Railways. Then, on March 5, 2022, the Russian Government issued Presidential Decree No. 95, which required that Russian borrowers make payments to foreign creditors from ‘unfriendly states’—including most countries that imposed sanctions on Russia for its invasion of Ukraine—in Russian rubles (irrespective of the currency of the loan), unless a permission to make direct payments in the contractual currency was granted by either the Central Bank of the Russian Federation (CBR) or Russia’s Ministry of Finance. This measure made it substantially more difficult for Russian borrowers to make timely payments on foreign- and local-currency debt to certain international creditors in their original currencies of denomination. In June 2022, the Russian Government defaulted on some of its dollar-denominated and euro-denominated debt. The fact that at least two of OAO Yamal LNG's lenders (Sberbank and Gazprombank) faced international sanctions in 2022 and 2023 likely complicated loan repayment. Poten & Partners -- a firm that advises clients that are active in the international oil, gas and shipping markets -- noted in March 2022 that that 'latest round of sanctions has left Russian LNG sector companies and the domestic and foreign companies that provide finance and services to them struggling to assess their liabilities and exposure to counterparties. [...] Providers of the approximately [$20 billion] debt package for Yamal LNG included China Exim, CDB, Sberbank, Gazprombank, Russia’s National Wealth Fund (NWF), Russia’s ECA, Exiar, with smaller portions coming from Germany’s Euler Hermes, Sweden’s EKN, Austria’s Raiffeisen, JBIC and Intesa San Paolo. State development bank VEB also provided a [$3 billion] guarantee to the project. Some of the Russian entities on the financing, including VEB, NWF and Exiar are now faced with sanctions. Novatek owns a 50.1% stake, with TotalEnergies and CNPC each holding 20% and China’s Silk Road Fund the remaining 9.9%. As the operating Yamal LNG project continues to service its loans, with a core group of lenders in Yamal LNG subject to sanctions, it will complicate arrangements. Parties who have contracts with the project such as shippers, suppliers and contractors are also potentially exposed to sanctions. It puts shareholders in a difficult position over whether to try and replace sanctioned entities. When Novatek and its partners were looking to raise funding for Yamal LNG, Russia’s annexation of Crimea forced them to makeover their financing plan. Financial advisor Societe Generale, and legal advisors White & Case and Latham & Watkins exited the project in 2014 and the financing was reworked to [maximize] support from Chinese and Russian lenders. It focused on using euros, Russian roubles and Chinese renminbi rather than US dollars to reduce sanctions risks. In its new form, the financing was successful, even though Novatek was subject to limited and defined US sanctions. But with the current round of restrictive measures, conditions are more challenging.'