Russian Government May Finance 15 Russian-Built LNG Carriers

Russian state development bank VEB.RF is considering a deal to finance 15 new LNG carriers for Novatek's Arctic LNG 2 project - an order worth an estimated $4.5 billion. 

VEB.RF, a fully owned development bank of the government of Russia, has already financed the construction of the first six vessels in the series. The ships will be constructed at newly-built shipyard Zvezda in the Russian Far East, in line with a directive from Russian President Vladimir Putin. Samsung Heavy Industries is believed to be serving as a technical advisor and partner in the project.

The first generation of icebreaking LNG carriers built for Yamal LNG - which is located adjacent to the Arctic LNG 2 site - were all constructed at overseas yards for foreign owners, with Russian shipping company Sovcomflot as the operator. Putin has placed a priority upon the use of Russian-flagged and Russian-built vessels for energy projects on the Northern Sea Route, and he has encouraged private companies to participate. 

On August 29, VEB.RF gained a new supervisory board whose members are appointed directly by the Russian government. VEB.RF chairman Igor Shuvalov indicated that the new body had had input into the LNG carrier financing discussions. "The key condition - this is what the supervisory board has demanded - [it] must be mandatory to ensure greater localization in the production of vessels at the Zvezda," said Shuvalov at a press event headlined by Russian prime minister Dmitry Medvedev. 

At present, VEB.RF has about $50 billion in investments in total, and a share of its holdings are comprised of distressed assets. As recently as 2017, about 35 percent of its portfolio was comprised of "problem loans," according to Moody's, and it has drawn heavily upon the Russian government to support its finances. It has been making efforts to clean up its balance sheet, and over the past year its credit ratings from foreign rating agencies have improved, due in part to the improved creditworthiness of the Russian government. VEB's fundraising possibilities are limited in American financial markets: it is blacklisted in the United States under sanctions related to the Russian annexation of Crimea.