Dutch duo Nederlandse Gasunie and Royal Vopak secured financing for their €800 million Gate terminal - the first LNG import facility in the Netherlands - on 18 July 2008.

The Gate project is noted as a ground-breaking transaction not just because there are only a handful of project financed LNG import terminals around - particularly in Europe - but because, as one source says, "Gate has a different structure to other facilities; it is one of the first projects offering its services as an independent open-access re-gas terminal."

Gate terminal - located on Maasvlakte in Rotterdam - should go online in 2011 with an initial capacity of 12 billion cubic metres a year but with the potential to expand this to 16bcm/yr in the future.

The project consists of three 180,000m³ LNG storage tanks and two jetties able to accommodate the giant 250,000 m³ Q-Max tankers [Projects Database].

Denmark's DONG Energy, EconGas from Austria and Essent from the Netherlands and German-based E.ON Ruhrgas have signed long-term throughput agreements with Gate, each committing to an annual throughput of 3bcm. As part of the agreement the four companies will also each acquire a 5 per cent equity stake in the terminal.

Site preparation for the facility started in Q1 2008 with a consortium of Techint, Sener, Entrepose and Vinci conducting the EPC work.

The Financing

The terminal financing - which was signed with around an 85:15 debt to equity ratio - secured commitment from the European Investment Bank (EIB) and a banking syndicate of 10 international commercial banks:

• ING - facility agent
• BayernLB
• BBVA
• BNP Paribas
• Calyon
• DnB Nor
• Fortis Bank
• Handelsbanken
• Rabobank
• Royal Bank of Scotland (RBS)

The total commitment from the MLAs - excluding a €149.42 million EIB loan guarantee - is €401.7 million:

• commercial term loan facility: €342.3 million
• cost over-run loan facility: €35.4 million
• Debt-service reserve facility: €24 million

EIB is providing a €342.3 million loan. During the terminals' construction period €149.42 million of this financing is guaranteed by the commercial banks.

All the debt facilities have a maturity of around 20 years.

ABN Amro (now RBS) is acting as financial adviser to joint venture partners Gasunie and Royal Vopak on the financing, while Addleshaw Goddard is acting as legal adviser.

Ashurst is advising the syndicate of commercial banks and EIB.

From a banking perspective Gate is a classical project finance transaction. As a source says: "It ticks all the boxes; it is fully contracted, the tenor is optimised, it has secured a strong group of commercial banks and the EIB is party to the lending."

However there are a few flexibilities on the financing, both to accommodate for the expansion of the terminal and to reduce the exposure of the sponsors to construction cost over-runs.

The source continues: "In most project finance deals in this sector you would expect to see completion guarantees from the sponsors, however, in the Gate transaction Vopak and Gasunie are only obliged to give limited support for cost overruns and delays."

The traditional structuring of the transaction and appointment of a highly experienced EPC consortium to construct the terminal were crucial in helping the sponsors negotiate these clauses into the deal.

Pricing

Based on current market conditions the pricing on Gate is very competitive on both the commercial and EIB tranches.

As one source on the deal says, "It reflects the market at the end of 2007 when the pricing on the project was initially discussed with the sponsors.

"Since then, margins have been rising significantly and a similar project would certainly be priced differently."

The upfront fee on the project's commercial debt is sub 100bps. Pricing starts at Libor+ a sub 100bps margin, it steps down slightly post-completion and in the later years of the loan rises above Libor+ 100bps.

A source says, "The margin on the EIB debt is slightly lower than on the commercial tranche - this is for two reasons: firstly, because the borrower benefits from the EIB cost of funding and secondly because on the EIB loan guarantee the banks guarantee but don't fund the debt. The slightly lower margin reflects the fact the banks don't have to fund themselves."

A lender notes that confidence in the counterparties and the project's structure are strong incentives for offering a competitive pricing on the transaction: "The conservative structure of the financing offers a very good risk profile for the lenders; the cash flows are fully contracted and derived from long-term throughput agreements covering the total capacity of the receiving terminal - there is no commodity price risk involved."

The Expansion

On the 18 July financing date three customers had signed throughput agreements with Gate terminal - DONG Energy, EconGas and Essent - however early in August E.ON Ruhrgas entered into an agreement with the JV for another 3bcm of plant capacity and a five per cent equity stake in the terminal.

As a result of the German energy firm's participation in the project Gate's total initial capacity is now being increased from 9bcm/yr to 12bcm/yr.

A banker estimates it will cost around €150 million to finance the E.ON expansion and the sponsors are already seeking the additional funds.

As a source on the deal says: "The whole of the basis of the financing is that the clients will be allowed to expand the terminal in the future and there are preconditions that they have to meet in order to do this.

"Exactly when and how this expansion will happen will be decided by the sponsors - if the pre-conditions are met they don't need the banks' approval.

"There is flexibility for the sponsors to go out into the market to raise more money to finance the expansion. It would be normal for them to come to the initial MLAs in the first instance because they know the deal best, but there is no contractual obligation on either side."

Vopak and Gasunie should secure the additional €150 million before the end of 2008.

Conclusion

The success of the Gate terminal financing reflects the enthusiasm of the lending market to back the burgeoning European LNG market.

As one source says: "A significant number of LNG import projects have been announced in the region and we wanted to be involved one of the first to be financed. It is also an excellent opportunity to work with both Gasunie and Vopak as sponsors.

The project secured a strong syndicate of banks even though, as another source says: "From purely a returns perspective it's not a hugely attractive project. If markets come down and liquidity costs come down - which given the current market crisis looks likely - it might start to look better.

"But over and above the tight returns it's an appealing transaction as Gasunie and Vopak are excellent clients. It's an attractive reference for the MLAs in terms of understanding the European gas market and getting closer to the players involved."

Furthermore, one banker concludes: "It's a strong project from a business perspective and evidence for that is that there are four big European companies involved that are prepared to sign 20 year throughput agreements on a fully-contracted take-or-pay basis.

"What shouldn't be underestimated is that in the current climate of political tension and general concern over the diversification of the supply sources for natural gas - as well as the security of supply to Western Europe - this project will provide 12 billion cubic metres of contracted capacity a year into European gas market."

The project at a glance