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Exclusive: LNG plant engineer Chiyoda to gain $1.4bn lifeline

Mitsubishi and MUFG aim to salvage key Japanese infrastructure exporter

An LNG plant in Louisiana, U.S., in which Chiyoda suffered heavy losses, is seen. 

TOKYO -- Japanese trading house Mitsubishi Corp. and MUFG Bank plan to provide more than 150 billion yen ($1.4 billion) to support struggling Chiyoda, one of the world's leading builders of liquefied natural gas plants, Nikkei has learned.

Chiyoda's restructuring will serve as a barometer of the outlook for Japan's infrastructure export ambitions, a keystone of Prime Minister Shinzo Abe's economic policy. As rising costs and waning demand spur companies to bow out of overseas nuclear power operations, the hope is that LNG plants will pick up the slack.

The Mitsubishi and Chiyoda boards meet this month to set forth an official turnaround plan for the engineering company.

Mitsubishi, which holds a 33.4% stake in Chiyoda, will provide the bulk of the new capital through a private placement of new preferred shares as well as loans. The share issue will not affect the trading house's voting rights, and Chiyoda is expected to remain publicly listed. MUFG Bank, an arm of Japanese megabank Mitsubishi UFJ Financial Group, will provide financing as well.

Chiyoda's woes stem from its Cameron LNG project in the U.S. state of Louisiana, where demand for workers in the wake of a hurricane forced the company to rack up around 85 billion yen in additional costs to secure experienced engineers.

Chiyoda is expected to record a net loss of 150 billion yen for fiscal 2018, which ended in March, far wider than the current forecast of a 105 billion yen loss. The company reported a 128.1 billion yen loss for the nine months through December, while its equity ratio plunged to 7.7%, down from 37.5% at the end of fiscal 2017.

Mitsubishi is positioning LNG as a major earnings driver, anticipating growing demand amid tougher environmental regulations. A strong relationship with Chiyoda will be crucial in helping the trading house access more projects around the world.

That Mitsubishi looks to bail out Chiyoda a third time, after crises in the late 1990s and 2008, reflects its bullish outlook for LNG plant exports.

Demand for natural gas has swelled amid a shift away from coal. Global LNG trade reached 313.8 million tons in 2018, rising 70% over a decade, according to data from the International Group of Liquefied Natural Gas Importers.

The Institute of Energy Economics, Japan, estimates that Asia will import 346 million tons of LNG yearly by 2030, accounting for more than 70% of worldwide demand.

Japan began buying LNG in the 1960s and now ranks as the world's largest importer of the fuel. Japanese shipbuilders and plant engineering companies gravitated to the field, enabling the country to develop advanced tankers, terminals and storage tanks. Plant demand is expected to continue growing along with LNG consumption.

Chiyoda is one of four companies worldwide capable of building large-scale plants, alongside compatriot JGC, Europe's TechnipFMC and U.S.-based Bechtel. Chiyoda, which built the world's largest LNG production facility in Qatar, enjoys a technical advantage over its rivals.

Plant operators like Chiyoda handle the design of the facility, arrange for the procurement of material and undertake the construction itself.

Huge LNG plants require tens of thousands of small parts and mobilize around 10,000 staffers on a daily basis. The operation of megaplants requires expertise and is considered a difficult sector for newcomers to enter.

Due to the massive scale of employees involved, any delay in construction delivers a blow to the company's bottom line. Plants have become even larger in recent years, as have the risks.

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