Page 49: of Maritime Reporter Magazine (May 2006)
The Marine Enviroment
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Since Kexim can only finance 80 per- cent of the construction costs of the ships, KexFinCo borrows the remaining 20 percent from a Korean commercial bank. KexFinCo then enters into a 20- year bareboat charter of each ship to
LNG ShipCo, with LNG ShipCo having the option to purchase each ship at any time prior to the end of the term for a fair market value calculated, under a pre-determined formula, as of the time of purchase. By this means LNG ShipCo is able to obtain 100% financing for the ships. Since KexFinCo owns the ships, no ship mortgages are necessary.
KexFinCo's upfront capital costs for the ships (i.e., its own 80 percent plus the
Korean commercial bank's 20 percent loan for the construction costs of the ships) are amortized and repaid (princi- pal, interest and costs) by LNG ShipCo in the form of monthly bareboat charter payments.
To support LNG ShipCo's obligations under its bareboat charter, LNG ShipCo is required to provide KexFinCo with a three-year renewable letter of credit from a multi-national bank (representing 20% of the cost of the LNG ships).
To complete the loop, LNG ShipCo then let the ships under a time charter arrangement to ProjectCo for a period of 20 years, minus one-day, and operates the ships for ProjectCo.
Lease financing transactions are also popular means to finance LNG vessels.
These vehicles generally offer certain tax benefits to ship owners that enable them to lower the charter rates of their ships. For example, in January 2006,
Teekay Shipping entered into U.K. tax lease financing transactions on three new-build LNG vessels to be chartered to Qatar Petroleum and ExxonMobil in connection with the Rasgas II project.
However, on July 21, 2005 HM
Revenue & Customs published a techni- cal note summarizing the proposed changes to the capital allowances regime for finance lease transactions.
These changes will be introduced in the
Finance Act 2006 and are expected to take effect on April 1, 2006. The broad effect of the proposed changes is that, subject to certain very narrow excep- tions, after April 1, 2006, the benefits of the U.K. tax lease financing structure will no longer be available to ship own- ers.
It is worth noting, however, that the
German KG financing (designed to take advantage of certain benefits under the
German Tonnage Tax) and the French tax lease financing remain viable options for future LNG ship owners.
U.S. demand for LNG is expected to drive growth in LNG trade in the
Atlantic Basin to at least 2020. There are, however, risks associated with this growth scenario, including much softer demand for LNG in the U.S., planned future upstream supply projects in areas that are neophytes in the LNG industry, as well as political and regulatory uncer- tainty that sufficient LNG receiving ter- minals to meet much higher demand will be approved and successfully devel- oped in the Americas.
The world of LNG shipping may be nearing a crossroads. Today we find ourselves with a surplus of available tonnage and low shipping costs which will lead to increased project returns.
Tomorrow the outlook may not be as sunny as surplus potentially turns to deficit and shipping rates increase.
However, ship owners are already planning ahead and ship orders have increased dramatically. As a result, the demand for financing for LNG ships will continue to rise.
About the Authors
Michael Anthony Nunes is a partner and
Jeremy R. Kennedy is an associate in the
Energy practice at law firm Akin Gump
Strauss Hauer & Feld LLP.
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Circle 260 on Reader Service Card
McDermott Joins Firm
Ocean and Coastal Consultants, Inc. hired Kevin M. McDermott, P.E., as
Project Manager/Professional Engineer-
Diver in its Gibbsboro, NJ office.
MacGregor RoRo
Packages For Color Line
A new RoRo cargo access/transfer sys- tems from MacGregor is designed to enhance the turnround efficiency of two fast RoPax ferries ordered by Color Line from Aker Finnyards
To be built by Aker Finnyards' Rauma facility for delivery in 2007 and 2008, each 211 m-long vessel is designed to carry 1,800 passengers and 2 km of trail- ers at a service speed of 27 knots. The first delivery will be deployed on the
Kristiansand-Hirtshals route and the sis- tership on the Larvik-Hirtshals route.
Bailey Appoints Booth
Bailey Refrigeration appointed Donald
Booth to the position of Branch
Manager, Virginia Beach, Va. Don and his wife Karen decided not to return to the New Orleans area after their home was destroyed by hurricane Katrina, but instead to relocate to the Virginia area.
Don and Karen have been a husband/wife team in marine refrigera- tion and air conditioning for more than 20 years and will substantially increase
Bailey's experience and knowledge in the Norfolk area.
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