Variable Interest Entities

9 Months Ended

Jun. 30, 2023

Consolidated Variable Interest Entities Disclosure [Abstract]

VARIABLE INTEREST ENTITIES

We are the primary beneficiary of the NEOM Green Hydrogen Company joint venture ("NGHC"), which is a variable interest entity ("VIE") that is consolidated in our Middle East and India segment. We are not the primary beneficiary of any other material VIEs. We account for a VIE for which we exercise significant influence but are not the primary beneficiary, such as the Jazan Integrated Gasification and Power Company joint venture ("JIGPC"), as an equity method investment. For additional information on JIGPC, refer to Note 7, Equity Affiliates.

The table below summarizes balances associated with NGHC as reflected on our consolidated balance sheets. For additional information on this joint venture, refer to the "NEOM Green Hydrogen Project" section that follows.


	30 June	30 September
	2023	2022
Assets
Cash and cash items	$87.8	$274.7

Trade receivables, net	—	1.3

Prepaid expenses	5.0	0.1
Other receivables and current assets	108.5	23.3
Total current assets	$201.3	$299.4



Plant and equipment, net	1,031.4	218.8


Operating lease right-of-use assets, net	226.8	—


Other noncurrent assets	161.7	1.5
Total noncurrent assets	$1,419.9	$220.3
Total assets	$1,621.2	$519.7

Liabilities
Payables and accrued liabilities	$474.7	$58.1
Accrued income taxes	0.1	—


Total current liabilities	$474.8	$58.1

Long-term debt – related party(A)	—	447.3
Noncurrent operating lease liabilities	17.9	—
Other noncurrent liabilities	2.6	1.4
Deferred income taxes	1.3	—
Total noncurrent liabilities	$21.8	$448.7
Total liabilities	$496.6	$506.8

Accumulated other comprehensive income	$4.0	$—
Noncontrolling interests(A)	605.1	30.0

(A)During the third quarter of fiscal year 2023, outstanding shareholder loans to NGHC were converted to equity in the entity. Accordingly, related party debt outstanding was reclassified to investments attributable to the noncontrolling partner of NGHC. This noncash activity is presented within “Investments by noncontrolling interests” on our consolidated statements of equity for the three and nine months ended 30 June 2023.

NEOM Green Hydrogen Project

In the fourth quarter of fiscal year 2020, we announced the NEOM Green Hydrogen Project (the "NEOM project”), a multi-billion dollar green hydrogen-based ammonia production facility that will be powered by renewable energy in the NEOM city of the Kingdom of Saudi Arabia. We, along with our joint venture partners, ACWA Power and NEOM Company, are equal owners in NGHC, which will develop, construct, own, operate, and finance the project.

During the third quarter of fiscal year 2022, we entered into an interim agreement with NGHC under which we commenced construction of the NEOM project. In addition, we executed an agreement with NGHC under which we will be the exclusive offtaker of green ammonia produced by the NEOM project under a long-term take-if-tendered agreement. In May 2023, NGHC finalized the $6.7 billion engineering, procurement, and construction ("EPC") agreement with Air Products named as the contractor and system integrator for the facility. The NEOM project is expected to be on-stream in 2026. We intend to transport green ammonia around the world to be dissociated to produce green hydrogen for transportation and industrial markets.

Air Products has one-third of the voting interests in the NGHC joint venture; however, substantially all the activities of the joint venture involve or are conducted on behalf of Air Products. Since we have disproportionately few voting rights relative to our economic interests in the joint venture, we determined that NGHC is a variable interest entity. In addition, we determined that we are the primary beneficiary of NGHC since we have the power to unilaterally direct certain significant activities, including key design and construction decisions, and we share power with our joint venture partners related to other activities that are significant to the economic performance of NGHC. Therefore, we consolidate NGHC within the Middle East and India segment.

In May 2023, NGHC secured non-recourse project financing of approximately $6.1 billion, which is expected to fund about 73% of the project over the construction period. Under this financing, the assets of NGHC can only be used to settle obligations of the joint venture, and creditors of NGHC do not have recourse to the general credit of Air Products. As of 30 June 2023, no borrowings were outstanding. However, we established an accrual of approximately $125 for financing fees that are eligible for deferral as a noncurrent asset on our balance sheet until borrowings are outstanding, at which time we will reclassify the unamortized balance as an offset to the debt. The recognition of deferred financing fees was a noncash transaction which had no impact on our consolidated statement of cash flows for the nine months ended 30 June 2023. In July 2023, the joint venture completed its first drawdown on the project financing of $1.3 billion.

As a condition of the project financing, Air Products issued performance guarantees that would require payment in the event of nonperformance in our role as EPC contractor. We estimate our maximum exposure to be approximately $1.2 billion, which will decline over time before expiring in November 2028.

The facility is being constructed on land owned by our joint venture partner, NEOM Company, for which NGHC signed a 50-year lease agreement. The land lease commenced during the third quarter of fiscal year 2023 due to completion of the project financing. Accordingly, we recorded an operating lease with a noncash right-of-use asset and corresponding liability of $223 for the lease, of which $209 is reflected within “Payables and accrued liabilities” for a lump-sum payment that we expect to complete in the fourth quarter of fiscal year 2023. Additional payments under the lease will occur after the first 30 years of the lease term.