Yemen LNG makes local history

In the largest ever limited-recourse transaction for a project in Yemen, a US$2.8bn financing package for a Yemeni liquefied natural gas (LNG) project was signed in May 2008. The financing involves a wide range of commercial banks and international financing institutions, including French, Korean and Japanese export credit institutions.

The deal backs a US$4.8bn project, first launched in August 2005, to build a two-train liquefied natural gas (LNG) plant near Balhaf in Yemen’s Gulf of Aden Coast, and to finance the plant’s associated pipelines, storage and port facilities. The project will monetise gas extracted from the fields dedicated for that purpose in the Marib region of central Yemen. According to the company, the project will produce 6.7 million tonnes of LNG per year and is 75% complete.

The loan includes US$1.7bn in senior limited-recourse project finance facilities. These consist of a commercial term loan (US$647.9mn); a loan facility benefiting from a comprehensive Coface guarantee (US$432mn); a loan facility benefiting from a comprehensive guarantee from Japan’s Nippon Export and Investment Insurance (Nexi) (US$80mn) and a bank-funded loan facility benefiting from a comprehensive Korea Export Import Bank guarantee (Kexim) (US$160mn). These are each provided by Bank of Tokyo-Mitsubishi, BNP Paribas, Citigroup, ING, Royal Bank of Scotland, Société Générale, Lloyds TSB and SMBC as initial mandated lead arrangers and bookrunners. In addition, the project benefits from direct loans from Kexim (US$240mn) and Japan Bank for International Cooperation (JBIC) (US$120mn).

The financing also includes a US$1.1bn, multi-tranche Total sponsor loan facility that benefits from a guarantee from Total and is funded by Bank of Tokyo-Mitsubishi, BNP Paribas, Citigroup, Calyon, ING, Royal Bank of Scotland, Société Générale, Lloyds TSB and SMBC as mandated lead arrangers.

“In addition to strong project fundamentals, the Yemen LNG project was attractive for banks because of solid off-take contracts and the fact that production was all destined for export, thus helping to mitigate country risk,” says Olivier Musset, managing director of energy project finance in the Emea region within the natural resources and energy financing group at Société Générale.

French petrochemicals group Total is the project’s lead sponsor with a 40% stake. US energy firm Hunt Oil holds 18% and Yemen Gas 17%. Other sponsors include SK Energy, Korea Gas, the General Authority for Social Security and Pensions of Yemen and Hyundai.

Musset comments: “The Yemen LNG transaction closed successfully, despite an extremely difficult market environment. The project benefits from strong business fundamentals and a high degree of support provided by the government of Yemen as well as by the international sponsors. The deal is important to Yemen’s economic development as it is the first ever large-scale project financing in this country. It is expected to bring up to US$20bn in revenue into the country over the next 20 years.

“While one could have expected margins on the uncovered commercial portion to be higher due to the location of the project, margins were maintained at a relatively low level for Yemen. The Yemen LNG transaction gives an indication about what banks are going to favour in 2009 – that is to say strong sponsorship, key project fundamentals and appropriate risk/reward for the banks.”

“The Yemen LNG pipeline and storage facility represents a crucial investment by Total and greatly adds to the diversity of their Middle Eastern operations,” says Andrew Moorfield, managing director and head of oil and gas at Lloyds TSB. “Lloyds TSB values its relationship with Total and was very pleased to act as a financing partner to this leading global company.”

Yemen LNG and the sponsors were advised by Sullivan & Cromwell. The banks and the export credit agencies were advised by Milbank, Tweed, Hadley & McCloy.

Deal Information

Borrower: Yemen LNG
Amount: US$2.8bn
Mandated lead arrangers: Bank of Tokyo-Mitsubishi; BNP Paribas; Royal Bank of Scotland; ING; Sumitomo Mitsui Banking Corporation (SMBC); Citibank; Société Générale CIB, Lloyds TSB
Additional lenders: Calyon; Fortis; Mizuho; BACB; KDB; Dexia
ECA/Insurer: Coface; Kexim; Nexi; JBIC
Sponsors: Total; Hunt; Korea Gas; Hyundai; SK Energy; General Authority for Social Security and Pensions of Yemen (GASSP); Yemen Gas
Law firms: Milbank (lender); Sullivan & Cromwell (sponsors)
Tenor: 15 years
Date signed: May 2008