Bank of China contributes to syndicated loan for Tangguh LNG Train 3 Expansion Project (Linked to Record ID#85359 and #100776)

Project narrative

On August 3, 2016, a group of international banks and financial institutions signed a US$2.045 billion syndicated loan agreement with a trustee [HSBC USA (New York)] and Japan International Finance Management (Tangguh) Corporation — a special purpose vehicle (SPV) — for the Tangguh LNG Train 3 Expansion Project. Members of the international bank loan syndicate included joint mandated lead arrangers Mizuho Bank, Bank of China, China Construction Bank, The Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking Corporation, DBS Bank, United Overseas Bank, BNP Paribas, Credit Agricole Corporate and Investment Bank, Oversea-Chinese Banking Corporation, Korea Development Bank, Shinsei Bank, and KfW Bank on a club basis. The total project debt amounted to US$3.745 billion, which was split into two syndicated tranches, this US$2.045 billion international bank offshore portion and a $100 million domestic Indonesian bank tranche, as well as two bilateral tranches of $1.2 billion (from JBIC) and $400 million (from the Asian Development Bank), respectively. The domestic bank tranche comprised four state-owned Indonesian banks PT. Bank Mandiri (Persero) Tbk., PT. Bank Negara Indonesia (Persero) Tbk., PT. Bank Rakyat Indonesia (Persero) Tbk., PT. Indonesia Infrastructure Finance. Bank of China also contributed to a syndicated loan in 2007 that financed the first two trains of the Tangguh Liquefied Natural Gas Project (see Record ID#85359). The deal involved a complex multi-tranche Indonesian trustee borrowing structure (TBS). Under this structure, loans are repaid from an agreed portion of gross proceeds under identified offtake contracts, in this case the liquified natural gas (LNG) SPAs. The buyers make payments directly to the trustee and paying agent [HSBC USA (New York)]. The trustee is also the borrower under the loan agreement with the lenders, and the debt service payments are made from the trustee accounts. Except otherwise provided, the lenders look to this source of debt service for all loans, with no recourse to the project and no security interest in the project assets or contacts. The project’s trustee borrowing structure is innovative compared with other Indonesian trustee borrowing schemes for two reasons. First, the financing structure had to function independently from the schemes used to finance the original Tangguh LNG plant. In addition, the project’s trustee borrowing structure had to be structured to comply with the Bank Indonesia regulation No.16/10/PBI/2014 as amended by Bank Indonesia regulation No 17/23/PBI/2015 (PBI 16/10). Pursuant to PBI 16/10, all export proceeds and foreign exchange debt must be paid onshore into an account maintained with a bank in Indonesia. To ensure compliance with this regulation, the project’s TBS includes a parallel onshore trustee structure. The purpose of the project is to add a third LNG process train (Train 3) and 3.8 million tons per annum (mtpa) of production capacity to the existing Tangguh LNG facility on the south side of Bintuni Bay in Teluk Bintuni Regency within Papua Barat Province, bringing the total capacity of the plant to 11.4 mtpa. The project also involves the construction of two offshore platforms, 13 new production wells, an expanded LNG loading facility, and supporting infrastructure. The project is expected to reach completion in July 2020 and play an important role in supporting Indonesia's growing energy demand, with 75% of the Train 3 annual LNG production sold to the Indonesian state electricity company PT. PLN (Persero). To address the needs of Papua Barat for electricity, Tangguh has also committed up to 20mmscfd of LNG for sale. The remaining volumes are under contract to Kansai Electric Power Company in Japan, the other foundation buyer for Train 3. The Tangguh LNG facility is located in Teluk Bintuni Regency, Papua Barat Province of Indonesia and consists of offshore gas production facilities supplying two 3.8 mtpa liquefaction trains that have been in operation since 2009. It is operated by BP Berau Ltd on behalf of the other production sharing contract partners as contractor to SKK Migas. BP Berau Ltd and its affiliates in Indonesia hold a 37.16% interest in the project. Other Tangguh production sharing contract partners are MI Berau B.V. (16.30%), CNOOC Muturi Ltd. (13.90%), Nippon Oil Exploration (Berau), Ltd. (12.23%), KG Berau Petroleum Ltd and KG Wiriagar Petroleum Ltd (10.00%), Indonesia Natural Gas Resources Muturi Inc. (7.35%), and Talisman Wiriagar Overseas Ltd. (3.06%). On August 4, 2016, Indonesia's Ministry of Environment approved an environmental and social impact assessment (AMDAL) conducted by BP, and issued an environmental permit for the project. Then, construction began the next month in September 2016. In March 2020 Indonesia's upstream regulator SKK Migas announced construction would be delayed because of the COVID-19 pandemic. The expansion was completed in July 2023 and inaugurated in October 2023. Record ID#73318 captures the estimated financial commitment of Bank of China, while Record ID#100776 captures the estimated financial commitment of China Construction Bank.