Ichthys LNG: The big one

Australia’s promised coal seam gas-to-LNG industry started to take off in 2012, but the year’s largest project financing in Asia-Pacific – and for that matter the world, or for that matter ever – was for an offshore LNG project. But the sponsors of the $34 billion Ichthys LNG project closed its $20 billion debt financing without any post-completion support, maximising their debt haul with an unprecedented cast of export credit agencies, and a 24-strong group of commercial lenders.

The financing is the first time a Japanese operator has led the development of an LNG project, and allowed it to maximise the participation of Japanese lenders, the new top dogs of international project finance. Japanese utilities, however, have typically been minority shareholders in, and customers of, Asia-Pacific liquefied natural gas projects.

The Ichthys field is located about 230 km off the coast Western Australia, at the outer limit from shore of where fixed-infrastructure LNG projects can operate. The project involves taking gas from the field to Darwin using an 889km sub-sea gas pipeline. In Darwin, a plant will extract liquefied petroleum gas and condensate, and liquefy the gas for export.

The plant is set to come online in 2016, and will have a capacity of 8.4 million tonnes of LNG and 1.6 million tonnes of LPG per year, and produce 100,000 barrels of condensate per day at its peak. This high proportion of liquids explains the attraction of such a remote field to its sponsors and its potential for high returns.

Inpex now owns 60.7% of Ichthys, while Total owns 36%, after an agreement between the two for Total to acquire another 6% of the project recently met its conditions precedent. Inpex originally owned 70% of the project’s equity to Total’s 30%, but sold down minority stakes to Osaka Gas (1.20%); Tokyo Gas (1.575%); Chubu Electric (0.735%), and Toho Gas (0.42%). The financing structure combines an incorporated special purpose vehicle for the onshore assets and unincorporated joint ventures for the upstream and offshore assets.

The minority shareholders of Ichthys are also among its offtakers, all under 15-year agreements starting in 2017. The full list comprises Tokyo Electric Power (1.05 million tpy), Tokyo Gas (1.05 million tpy), Kansai Electric (800,000 tpy), Osaka Gas (800,000 tpy), Kyushu Electric (300,000 tpy) Chubu Electric (490,000 tpy), Toho Gas (280,000 tpy), Taiwan’s CPC (1.75 million tpy), Total (900,000 tpy) and INPEX (900,000 tpy).

The two original developers mandated two financial advisers – Credit Agricole and Mizuho – even as it started the process of signing up contractors for the project’s onshore and offshore infrastructure. A JGC-led consortium, which also comprises KBR, Chiyoda, and Leighton, is responsible for onshore infrastructure construction. Saipem, Technip, McDermott, Samsung, and Mustang are among the offshore infrastructure contractors.

The presence of Japanese firms as sponsors, offtakers and contractors assured a substantial role for JBIC and NEXI, though Korean, French , Australian and German ECAs were also present. The debt financing breaks down into $5.8 billion in direct ECA loans, $5.4 billion in ECA-covered debt, $4.8 billion in commercial bank debt from 24 lenders and $4 billion in sponsor loans.

JBIC is the largest direct lender, with a $5 billion loan, while Kexim lent $680 million, and Australia’s EFIC $150 million. Korea predominated on the covered debt, with Kexim covering $2.92 billion and K-Sure $972 million, though NEXI also covered a $2.749 billion piece. Rounding out the covered component is a $578 million Atradius piece, $545 million Euler-Hermes tranche, and $234 million Coface piece. ANZ (upstream accounts), BTMU, CBA (intercreditor), Mizuho (downstream accounts), and SMBC (documentation and ECAs) were bookrunners.

The banks participating in the deal were ANZ, Bayerische, Landesbank, BOS International, BTMU, CBA, CIC, Citi, Credit Agricole, EDC, HSBC, ICBC, ING, KfW-IPEX, KDB, Korea Finance Corporation, Mizuho, MUFJ Trust, NAB, SG, Shinsei Bank, SMBC, Standard Chartered, Sumitomo Mitsui Trust, and UniCredit. Considering that the sponsors were asking for 16-year debt while the Eurozone crisis exacted its gruesome toll, and Australian banks have never been eager to provide double-digit tenors, this haul is impressive. Spanish and Italian banks are, however, conspicuous by their absence. The pull of Total and a recovery in French banks’ dollar funding capabilities allowed them to come out in force.

Helping the banks get comfortable with the credit were the strength of the offtake agreements, and the sponsors’ willingness to provide a debt service undertaking during construction. The Japan Oil, Gas and Metals National Corporation (Jogmec) partially guaranteed a maximum of $2 billion of INPEX’ exposure.

The advisers also started communication with the bank market early, holding meetings in October 2011 in Tokyo and Sydney to keep lenders up to date with their progress. The deal managed to close in December 2012, going into the project finance record books with a rocket. Ichthys LNG Pty Ltd
Status
Signed 18 December 2012
Size
$34 billion
Description
8.4 million tonnes-per year LNG project located off- and onshore Western Australia
Sponsors
INPEX (60.07% and operator); TOTAL (36%); Osaka Gas (1.20%); Tokyo Gas (1.575%); Chubu Electric (0.735%), Toho Gas (0.42%).
Debt
$20 million
Mandated lead arrangers
ANZ, Bayerische Landesbank, BOS International, BTMU, CBA, CIC, Citi, Crédit Agricole, EDC, HSBC, ICBC, ING, KfW-IPEX, KDB, Korea Finance Corporation, Mizuho, MUFJ Trust, NAB, SG, Shinsei Bank, SMBC, Standard Chartered, Sumitomo Mitsui Trust, UniCredit
Financial advisers
Crédit Agricole, Mizuho
Export credit agencies
Atradius, Coface, EFIC, Euler-Hermes, JBIC, Kexim, K-Sure, NEXI
Onshore infrastructure contractors
JGC, KBR, Chiyoda, Leighton
Offshore contractors
Saipem, Technip, McDermott, Samsung, Mustang
FEED contractors
AMEC, with Aker Solutions and JP Kenny
Sponsor legal counsel
Allen & Overy (International); Allens (Australia); Clayton Utz (Chubu)
Lender legal counsel
Latham & Watkins (International) and Herbert Smith Freehills (Australia)
Onshore EPC counsel
Hogan Lovells
TECHNICAL ADVISER
Shaw
ENVIRONMENTAL ADVISER
D'Appolonia
INSURANCE ADVISER
BankServe
RESERVES CONSULTANT
DeGolyer & MacNaughton