January 18, 2019 / 9:20 AM / 7 months ago

PNG leads wave of jumbo project loans

SYDNEY, Jan 18 (LPC) - The expansion of Papua New Guinea’s giant gas project is turning up the heat in the Asia Pacific project finance arena, with a slew of jumbo financings set to emerge from Oceania in the next 18 months.

Stakeholders in the Papua New Guinea Liquefied Natural Gas project are in discussions with export credit agencies and commercial banks for up to US$9.8bn of debt to fund the next phase of the project, in what will be the region’s biggest project financing since 2010.

Another major deal is also in the works as Australia Pacific LNG prepares to refinance US$3bn of project debt. JP Morgan has been named financial adviser.

Combined with other potential fundraisings from the oil and gas, renewable energy and infrastructure sectors, the two jumbo LNG deals promise to keep PF lenders busy in 2019 and beyond.

“The 2019 outlook for project financing in the natural resources sector is reasonably positive, both in Australia and globally,” said Grant Willis, managing director of natural resources and energy at Commonwealth Bank of Australia. “Positive investment decisions are likely in several mega LNG projects in both the US and Asia Pacific.”

The long-awaited expansion of the PNG LNG project is estimated to cost around US$12bn-$14bn and involves construction of three new gas processing units, called trains, at the Papua New Guinea LNG plant.

The financing is expected to close in 2020, which holds long-term promise for lenders. It is the largest resources-related borrowing in Oceania since March 2010, when the PNG LNG project raised US$14bn in initial funding from ECAs, commercial banks and lead sponsor and operator ExxonMobil. The US$1.95bn commercial portion attracted 17 banks. PNG LNG is already operational, and principal repayments commenced in June 2015. SIGNIFICANT SIZE The giant size of the latest PNG LNG loan represents nearly a fifth of the total US$47.17bn raised from PF loans in Australia, New Zealand and Papua New Guinea in the last five years, according to LPC data.

“Even with a 2020 close, the timing of this [PNG LNG] deal is important and will keep the market busy,” said a head of project finance at a major Australian bank.

The renewable energy sector is also expected to produce several PF loans for projects tied to the Australian government’s target of 33,000 gigawatt-hours, or about 23.5% of the country’s electricity generation, from renewable sources by 2020.

Among the sizable ones is Snowy Hydro 2.0, which is estimated to cost A$3.8bn–$4.5bn. The bidding stage is expected to be finalised this quarter, with funding likely to close in the second or third quarter of 2019.

The Victoria state government has a big pipeline of solar and wind projects under its Renewable Energy Action Plan, with at least six awarded at auction in September. Each project is a few hundred million dollars in size and funding is expected to be swift.

One of those projects, the Dundonnell Wind Farm, is estimated to cost A$560m and has already raised A$300m through a loan with the remainder to come via equity.

“Activity levels are expected to remain high in the renewables space, with developers and sponsors keen to deploy equity capital and banks ever willing to provide long-term debt finance,” added Willis.

In the infrastructure sector, public-private partnerships are expected to contribute to the lending volume with the A$5.4bn Brisbane Cross River Rail project being the next coveted transaction. The tender process is in progress for the underground section of the project is in progress currently. (Reporting By Sophia Rodrigues; editing by Prakash Chakravarti and Steve Garton)

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