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Parent company says Magnolia LNG could be saved if buyout offer accepted

Highlights

Singaporean investor seeks takeover of LNG Limited

Louisiana project facing challenges securing offtake deals

Houston — Australia's LNG Limited urged shareholders Friday to accept a buyout offer from a Singaporean investor with ties to floating regasification facilities in Asia and Europe in a bid to save its Magnolia LNG export project in Louisiana.

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The deal, which values the company at $75 million (A$114 million), follows the developer's warning January 31 that it must immediately raise new sources of cash to continue operating normally amid challenges securing sufficient commercial agreements to advance the project to construction.

LNG Limited said at the time that the additional cash was needed "in order to maintain operations as a going concern."

Since then, global LNG markets have faced increasing pressure from low international prices, weaker-than-expected demand in key end-user markets and trade flow restrictions from the deepening global crisis over the coronavirus outbreak. Its US shares have traded below $1 since last May.

"Shareholders who accept the offer avoid the risk of [LNG Limited] entering administration or liquidation, which event would introduce risk of significant value loss resulting from, among other things, insolvency clauses existing in key Magnolia LNG contracts, such as the [engineering, procurement and construction] contract, equity commitment agreement, and the site port lease, which clauses provide counterparties with rights including contract termination," the developer said in a memorandum to investors posted on its website.

Magnolia LNG already has a permit certificate 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.

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.

The privately held entity that has offered to buy LNG Limited is called LNG9. It is based in Singapore and offers various services along the LNG value chain. It says on its website that its shipping partners will carry LNG to regasification facilities with which it is affiliated, and that together with partners it offers ground transportation of LNG and offshore storage units.

LNG Limited "has over the last year evaluated many potential corporate and asset transactions to provide liquidity and value for shareholders and considers that the LNG9 offer is the most attractive offer currently available for ... shareholders," it said, adding that the company's directors "will therefore unanimously recommend that [LNG Limited] shareholders accept the offer in the absence of a superior proposal being received."

OFFER CONDITIONS

The all-cash offer is subject to LNG9 receiving acceptances from holders of at least 90% of LNG Limited's shares, as well as other conditions including the US Committee on Foreign Investment neither preventing consummation of the offer nor imposing restrictions that adversely impact the transaction. The agreement allows the buyer to match any competing offers.

In its statement, LNG Limited said the buyout is its only option in an increasingly challenging marketplace.

"At the current burn rate, [LNG Limited's] existing available liquidity is insufficient to sustain operations beyond the current quarter based on existing funds," the developer said.

It added: "LNG industry competition remains intense; current LNG markets are oversupplied; and future increases in share value are not guaranteed, particularly in the short to medium term. While [LNG Limited] is excited by the LNG supply opportunity in Vietnam initially announced on September 16, 2019 and the expectation that the [memorandum of understanding] will become binding, we cannot assure additional binding offtake contracts necessary to support a final investment decision and financial close given current LNG market conditions."