LNG Limited's required financing to stay afloat falls through

Bridge financing essential to keeping LNG Limited operating long enough to close an agreement to be taken over by a Singaporean investor fell through amid a further deterioration in market conditions due to the coronavirus pandemic, the Australian company said.

The development raises the potential for liquidation, which would imperil the company's proposed Magnolia LNG export project in Louisiana.

The health crisis has impacted trade flows and effectively shut off the ability of US developers to meet face to face with prospective customers in Asia and Europe to secure commercial agreements to support their projects. That has combined with a challenging market environment already beset by low international prices and weaker-than-expected demand.

ENOUGH CASE UNTIL APRIL

LNG Limited has enough cash to stay afloat until late April, but doesn't expect the takeover to be consummated until May 28 at the earliest, CEO Greg Vesey said in a statement posted on the developer's website Friday local time. The company is working with its suitor — a firm called LNG9 — to help it secure new financing, but can't be assured that effort will be successful, Vesey said.

"First Wall Street Capital Corp. has advised LNG Limited that it will not provide funds according to the terms of the legally binding secured convertible note subscription deed," Vesey said. "LNG Limited has therefore terminated the deed and the security provided under that deed, and reserves all of its rights against First Wall Street Capital Corp."

The lender did not respond to several messages seeking comment.

"Based on discussions held to date, LNG Limited anticipates that new sources of funding on terms acceptable to LNG Limited and LNG9 will be obtained, although that is not certain," Vesey said.

When the $75 million (A$114 million) takeover offer from an energy investor with ties to floating regasification facilities in Asia and Europe was announced February 28, LNG Limited said the deal was critical to being able to save Magnolia LNG. The alternative was the risk of administration — akin to bankruptcy in Australia — or liquidation, it said at the time. Insolvency would trigger contract clauses that could allow counterparties to terminate the project's engineering, procurement and construction contract and its site port lease.

Since then, LNG market turmoil has increased due to the coronavirus. The market value of LNG Limited shares plummeted to less than half the offer price, to $34 million, as of the end of trading Thursday in New York. The shares initially surged Friday on hopes new funding could be secured, putting their value closer to the offer price, before plunging again.

TAKEOVER AS BEST SHOT

LNG Limited said it continues to believe the takeover offer is its best shot at preserving the company and its main project. The deal is not guaranteed of being successful, however. Terms include that prior to closing there be "no material adverse change occurring in respect of" LNG Limited.

Magnolia LNG already has certificate authorization from US regulators and a fully wrapped EPC contract. What it does not have, to date, are any firm offtake deals. Last fall, the company announced a preliminary deal for 2 million mt/year of supply that is tied to a proposed Vietnamese power project, but that transaction still must be finalized. In its announcement of the takeover offer, the company said it could not assure additional offtake commitments would be secured in the market environment at the time.

Besides Magnolia LNG, LNG Limited also has proposed an export terminal in eastern Canada called Bear Head LNG. The company had previously said it continues to market capacity there, primarily to major Western Canadian Sedimentary Basin gas producers.