11-17-2013, 12:56 AM
Project Financing is engineered by lenders if they can stomach the risks associated with the enterprise. When XOM was lining up lenders in 2009 for the PNG LNG project they couldn't get enough money so they had to lend a large chunk from their Corporate coffers ... the risk was too high and money was scarce. Now that the project is near completion the cost for future projects in PNG are known to the industry/ banks and the risk for further projects in PNG is lower.
http://www.eagletraders.com/loans/loans_...inance.htm
Suppose IOC has to come up with $1.5 Billion to cover their cost of the project.
They must put up about 35% in cash and borrow 65% (give or take depending on how generous the lenders will be)
The interest rate on what they borrow will be Libor + 3-4% during construction.
Libor rates are always published; current overnight Libor is about 0.6%
12 month is higher.
You never pay Libor without a premium; no one will do that in Project Finance.
http://www.global-rates.com/interest-rat...onths.aspx
So IOC will pay on the order of 4-5% interest on the $1 Billion they borrow.
Would you join a bank syndication to lend the money to IOC knowing that XOM would be running the show, basically duplicating the recently completed project?? The cash is repaid based on XOM's performance, not IOC's.
Of course you would.
All the major banks have money and are ready to lend it to high quality projects.
http://www.eagletraders.com/loans/loans_...inance.htm
Suppose IOC has to come up with $1.5 Billion to cover their cost of the project.
They must put up about 35% in cash and borrow 65% (give or take depending on how generous the lenders will be)
The interest rate on what they borrow will be Libor + 3-4% during construction.
Libor rates are always published; current overnight Libor is about 0.6%
12 month is higher.
You never pay Libor without a premium; no one will do that in Project Finance.
http://www.global-rates.com/interest-rat...onths.aspx
So IOC will pay on the order of 4-5% interest on the $1 Billion they borrow.
Would you join a bank syndication to lend the money to IOC knowing that XOM would be running the show, basically duplicating the recently completed project?? The cash is repaid based on XOM's performance, not IOC's.
Of course you would.
All the major banks have money and are ready to lend it to high quality projects.
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