Russia's Novatek launches major LNG project Yamal

Russia's Novatek launches major LNG project Yamal
Russia's Novatek launches major LNG project Yamal
By bne IntelliNews December 6, 2017

Russia's second-largest gas producer Novatek launched its long awaited $27bn liquefied natural gas (LNG) project Yamal, the company announced on December 5. The first cargo loading scheduled for December 8 has been sold to the China National Petroleum Corporation (CNPC), according to Vedomosti daily.

Despite the Western sanctions, privately owned Novatek managed to finance the Yamal LNG project and now its ambitions on the LNG market include expanding Yamal's capacity and building another $10bn LNG plant.

Prior to Yamal LNG Russia had only one LNG plant on Sakhalin island in the Far East, which was operated by a joint venture of gas giant Gazprom and a number of foreign companies. Currently Russia produces about 10mn tonnes of LNG a year but aspires to increase this to some 80mn tonnes, which would make it a major player in the LNG business.

The first line of the Yamal LNG with a capacity of 5.5mn tonnes out of planned 17.5mn was "long awaited," according to VTB Capital analysts, who note that the first delivery came within the timeframe guided by the company.

"Overall, given the company’s guidance and long-awaited launch of the plant, we deem the news as rather neutral for the name," VTB wrote on December 6.

Aton Equity on December 6 commented that Yamal LNG plays an important role in Novatek's investment case, contributing $16 per GDR of the analysts' Novatek target price of $133. Aton believes Novatek's shares will be in focus next week and maintains its Buy recommendation.

The Yamal LNG project stipulates construction of a 17.5mmt LNG plant on the Yamal Peninsula, in which Novatek holds 50.1% stake, French Total 20%, Chinese CNPC 20%, and the Silk Road Fund 9.9%. 

In November Novatek signed a memorandum with Japan’s Marubeni Corporation and Mitsui O.S.K. on building an LNG transhipment terminal on the Kamchatka Peninsula. The terminal is central to Novatek's LNG ambitions as it would ensure flexible supplies of LNG to the key market of Asia-Pacific countries.

On September 28 Fitch Ratings affirmed the Long-Term Foreign-Currency Issuer Default Ratings (IDRs) of  Novatek at 'BBB-' with a negative outlook

According to Fitch, the rating reflects Novatek's strong business profile as a large Russian natural gas producer and exporter of refined and crude liquids, its moderate debt load, which is expected to decline in the short term, and projected positive free cash flow (FCF).

"The rating also takes into account Novatek's constrained access to international debt markets because of the US sanctions, and diminishing, though still present, completion risks associated with its Yamal LNG megaproject," Fitch said. 

Novatek 2Q17 IFRS highlights

USD mn

2Q16

1Q17

2Q17

Chng, YoY

Chng, QoQ

2Q17F, VTBC

Diff

2Q17F, Cons*

Diff

Revenues

1933

2628

2254

0.17

-0.14

2209

0.021

2235

0.009

EBITDA adj.

668

918

765

0.15

-0.17

745

0.027

765

-0.001

Net income

562

567

57

-0.9

-0.9

51

0.113

43

0.309

Source: Company data; VTB Capital Research; * Provided by Interfax as of 25 July 2017

 

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