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Sanctions Impact on the Oil Sector up Close: Financing for Russia's Yamal LNG Plant Stalls

Money from western financial institutions isn't coming in due to fears and restrictions raised by western governments and Russians complain Chinese financing is more expensive

  • A missed opportunity for both western banks and Russian oil giants
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MOSCOW, Oct 19 (Reuters) - Efforts to secure financing for Russia's Yamal LNG plant have stalled, with the owners baulking at costly Chinese loans and Western sanctions hampering alternatives, two Russian banking sources said, warning the search could drag into next year.

The quest to bankroll the $27 billion project ahead of a planned 2017 launch is seen as a test of Russia's ability to secure foreign loans at a time when the country's access to capital markets is severely limited by Western sanctions over its involvement in the conflict in eastern Ukraine.

The lead Russian company in the project -- Novatek , Russia's largest private gas producer -- is under U.S. sanctions, making it harder for it to find cash for an export project that envisages three liquefied natural gas (LNG) production lines with a capacity of 5.5 million tonnes a year each.

Novatek has a 50.1 percent stake in what will be only Russia's second LNG plant. France's Total and China's CNPC hold 20 percent each. And last month, Novatek agreed to sell a 9.9 percent stake to the China Silk Road Fund.

Originally, Novatek, where a close ally of President Vladimir Putin, Gennady Timchenko, is a co-owner, had expected to raise up to $20 billion from Chinese banks, with the first funds expected by the end of 2014.

But two Russian banking sources, who declined to be named, told Reuters they saw little movement on a deal for now.

One of the sources said that Yamal LNG was not happy with earlier offers from the banks and had been forced to relaunch the bidding process.

"Chinese money is expensive, so Novatek and Total would like European banks to take on the larger share of financing which is complicated by sanctions," the source said.

He said it was unclear whether the loans would be provided by the end of the year.

"There is no movement at the moment," another source said. "Of course, everything could be done in the course of one night ... but so far it looks unlikely that there will be anything before the year-end."


Novatek has shifted its own deadline for a deal several times. Leonid Mikhelson, the firm's CEO, said last month a deal was now expected in "a maximum" of four months' time with the amount cut to $12 billion.

Russia's state development bank VEB has pledged $3 billion in banking guarantees, while the country's Sberbank and Gazprombank preliminarily agreed to provide $3 billion and $1 billion in loans, respectively.

In written comments to Reuters, Sberbank said it still planned to provide the rouble equivalent of $3 billion as part of a wider syndication loan.

"The process of arranging such financing is complex and assumes the participation of many lenders so it is hard to predict when it will be completed," Sberbank said.

"The delay in announcing project financing for Yamal LNG also raises concerns about the project's timing and possible increased equity investment in the project," Goldman Sachs said in a research note on Monday.

The banking sources did not say if delays in obtaining financing might affect the timing of the project's launch. Sberbank said it was not aware of any deviations from the original schedule.

A third banking source said he hoped everything would be ready on time, but said "there are a lot of difficulties (with financing) such as sanctions and the project's scale".

Sberbank last week afforded Novatek a credit line capped at 50 billion roubles ($805 million) which could be used for Yamal as well, the bank said in emailed comments.

Novatek has secured 150 billion roubles from Russia's rainy-day National Wealth Fund and Total CEO Patrick Pouyanne said last week that financing for the Yamal LNG project was "on track".

Novatek and VEB declined to comment. Gazprombank did not reply to a written request for a comment.

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