On 4 June 2018, Liquefied Natural Gas Ltd (AX:LNG) announced a strategic investment by IDG Energy Investment Group Ltd (HK:0650), a Hong Kong-listed investment holding company affiliated to IDG Capital with assets under management of c $20bn. The share placement raised gross proceeds of A$28.2m at a price of A$0.5/share (a 14.1% premium to 30-day volume weighted average price to 1 June 2018). We believe the share placement will cover Magnolia pre-FID costs and cash burn through to mid-2020. In addition, the presence of IDG Energy as a major shareholder (9.9% of share capital) will enhance credibility in China, a principal growth market for liquefied natural gas (LNG) imports. Our valuation, which we have updated to reflect funds raised and fx, rises 1% from A$1.00/share (US$3.23/ADR) to A$1.01/share (US$3.18/ADR).
Tolling agreements and debt finance key to FID
Magnolia LNG has existing lump sum turnkey (LSTK) contractual agreements for plant construction with performance guarantees for the company’s low-cost, proprietary OSMR technology. With equity funding secured from Stonepeak Infrastructure Partners, the key to delivering project final investment decision (FID) in 2018 remains the signing of tolling agreements/SPAs and securing debt funding (c 70% of total US$3bn). The timing of these remains uncertain.
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