PROJECT FINANCE EMBA GLOBAL B10

GROUP ASSIGNMENT

SUBMISSION DATE: Jan 28, 2023 in BB

1. According to you, what are the advantages of Cheniere’s current financing

approach for the Sabine Pass LNG liquefaction project?
Answer – Sabina Pass is subsidiary of Chenier and first facility that can export
as well as import LNG. We can identify Chenier’s financing approach and its
advantages as below –
1) In June 2010, Cheniere changed strategy & announced building LNG
liquefaction plant near Sabine Pass as well as converting facility into bi-
directional operations.
2) Cheniere came up with the strategy by entering into fixed price 20-year
purchase agreements (SPAs) with 4 customers covering an 16.0 mmtpa
for train 1 – 4 and commencing date of 1st delivery. Under this
agreement, all SPAs will pay fixed part of fee regardless of gas ever
produced or not that added $2.3 billion.
3) Cheniere-owned project company Sabine Liquefaction, secured US
Department of Energy approval to export up to 16 mtpa of LNG “to all
countries with which trade is permissible.” The approval was the first of
its kind and rendered Sabine Pass the first LNG export facility to be built
in the US.
4) Total cost to build Trains 1 to 4 were $9 to $10 billion before financing
and with financing it was $12 to $13 billion. Initially Cheniere Energy
Partners secured $2 billion in project equity for 1st 2 trains from two
sources. Cheniere invested $500 millions by purchasing shares in
subsidiary Sabine & rest of funds were financed by selling equities to
Singapore state investment firm Temasek & Asia based private equity
firm RRJ capital. Rest of equity arrives later in 2012 by Blackstone Group
LP and China investment bank (a state-owned firm purchased $1.5
billion worth of shares). The involvement of Blackstone was a positive
step in the market’s perception of the project and was a factor in helping
secure the debt piece of the financing.
5) Company followed aggressive funding strategy by securing loans &
building Trains from 1 to 4. As soon they get loan they complete
construction & remaining part of fund was secured via high yield bonds
 or secured notes. These notes were also rated well. By 2013, all of
Sabrine Pass Liquefaction issues performed well trading above the
market rate that is coupled with robust high yield bond market & derth
of bonds in market.
6) Cheniere kept clause that contract with all 4 SPAs will be terminated on
any significant delay in construction of 1 - 4 Train facilities.
7) To save on construction costs, a Cheniere subsidiary, Sabine Pass
Liquefaction, LLC added liquefaction capacity to the site that already has
receiving terminals plus LNG storage and regasification equipment. This
approach creating infrastructure enabled Cheniere to mitigate the risk of
the Sabine Pass project thereby making it a more attractive proposition
for investors, lenders and government regulatory approval, a factor one
source described as “crucial to the project's successful close.”

2. Suppose you are a prospective investor,(E.g A Pension fund) planning to

invest in Bonds. Discuss the reasons for your investment/non-investment
of Cheniere’s latest May 2014 Sabine Pass Liquefaction bond issue? You
may highlight the drawbacks of the bond, for your non-investment
decision.