©Bloomberg

Two Chinese state banks have agreed to lend more than $12bn to develop a liquefied natural gas plant in the Russian Arctic, in a boost for one of President Vladimir Putin’s flagship projects after US sanctions targeted its largest shareholder.

A financing deal for Yamal LNG, one of the largest in Russian corporate history, had been expected to be signed more than a year ago. But negotiations were complicated by US sanctions against Novatek, its majority shareholder. Novatek is part-owned by Gennady Timchenko, who is also under US sanctions as a member of Mr Putin’s “inner circle”.

On Friday, however, Export-Import Bank of China and China Development Bank signed two 15-year loans, for €9.34bn ($10.7bn) and Rmb9.76bn ($1.5bn) on Friday, according to regulatory statements from Yamal LNG.

For the Kremlin, the $27bn Yamal LNG project has become symbolic of Russia’s ability to execute large deals in spite of western sanctions. With Friday’s Chinese loan, the project — which is due to start producing LNG next year — has now covered its entire expected financing needs.

In addition, the deal represents a significant step in Mr Putin’s push to boost commercial ties with China since sanctions were imposed on Russia by the US and Europe over the annexation of Crimea. This “pivot to Asia” has so far disappointed Russian executives and politicians, as Chinese companies showed no rush to invest.

“The project has progressed despite the imposition of sectoral sanctions on Novatek and a precipitous decline in prices,” said Mark Gyetvay, Novatek chief financial officer, in a conference call following the company’s quarterly earnings report on Thursday. He noted that the project is already more than 50 per cent completed.

But a combination of US sanctions and tumbling oil and gas prices has caused negotiations over the financing package for Yamal LNG to drag on many months longer than expected.

Sanctions made financing the project in US dollars impossible and led US banks and several European banks to pull out of the financing deal, according to people familiar with the situation. Even the Chinese banks changed the terms on which they were willing to lend to the project as energy prices fell, the people said.

Falling energy prices have put LNG projects under pressure around the world, with Australia’s Woodside Petroleum last month shelving plans for the $40bn Browse project.

Yamal LNG’s Chinese financing deal follows a €3.6bn loan from Russian state-controlled banks Sberbank and Gazprombank, and 150bn (€2bn) roubles in support from Russia’s National Welfare Fund, a sovereign fund designed to support the country’s public pension system.

Shareholders in the project have also invested a total of $12.8bn to date, according to Novatek.

Novatek earlier this year completed a deal to sell a 9.9 per cent stake in the project to China’s Silk Road Fund. Other shareholders in Yamal LNG are CNPC and Total, with 20 per cent each.

Signing the Chinese loan deal is a big boost for Novatek, Russia’s largest independent gas producer, which successfully lobbied for an exemption to Gazprom’s gas export monopoly to build the Yamal LNG project.

“Yamal LNG is a cornerstone of our ambitious plans to become a global player in the LNG markets,” Mr Gyetvay said.

Delays in competing a financing deal have weighed on investor sentiment towards the company, whose largest shareholders include Mr Timchenko and fellow oligarch Leonid Mikhelson, as well as Total, which owns an 18.9 per cent stake.