DOHA: Fitch Ratings has affirmed Ras Laffan Liquefied Natural Gas Company Limited (2)’s and Ras Laffan Liquefied Natural Gas Company Limited (3)’s senior secured bonds at ‘A+’ with stable outlook. The obligations of each issuer are guaranteed by the other entity.
Fitch considers RasGas’ key strength its exceptionally high financial flexibility. This is of critical importance in supporting the bonds’ ‘A+’ rating despite mostly Midrange individual key rating drivers assessments. The stable outlook is supported by the strong operating track record and the strong outlook for liquefied natural gas (LNG) demand globally.
During 2012, the projects’ safety records remained at the top end of the industry standards, highlighting sound operational procedures. The LNG trains’ technical performance was positive, as testified by operation and maintenance expenses broadly in line with budget and total LNG production of 30.1 million tonnes (Mt), higher than the 29.7Mt budget and the 28.5Mt output for 2011. The company’s positive operating track record, its five LNG train configuration and its ability to withstand major cost shocks support a Midrange assessment for operational risk despite technology and operating costs risk factors sitting at the higher end of the spectrum within Fitch’s infrastructure and project finance rating universe.
Fitch assesses the revenue risk factor for RasGas as midrange. The assessment is weighted down by the market price risk on the company’s entire output. Also, some volume risk exists, in the form of counter-party exposure, to unrated Petronet LNG Ltd, Edison (BBB/Stable, around 16 percent of 2012 LNG deliveries) and Endesa (BBB+/Negative, around 3 percent of 2012 LND deliveries). In addition, the company will need to continue managing as spot sales the portion of the LNG volumes under the Exxon Mobil contract which yet has not been re-contracted under medium- or long-term agreements.
However, these weaknesses are mitigated by RasGas’ strong competitive position within the global LNG market. Fitch considers that the company’s extremely low oil and natural gas break-even prices grant to the company substantial financial flexibility in weathering possible downturns in market conditions.
Fitch has not received updated reserve audits. However, RasGas confirmed that the pressure and quality of the gas at the wellhead remains in line with expectations. Proved reserves were estimated as sufficient to meet the project’s base case plateau production beyond the longest debt maturity. Even in the event of a faster than anticipated production decline, it is considered that Qatar’s North Field holds sufficient resources to maintain RasGas’s targeted throughput level and that the cost of additional developments would not constitute an issue for the company. Fitch therefore assesses supply risk as Stronger.
The bullet maturities in the Series F and G bonds (and in the corresponding sponsor co-lending tranches) introduce stress in the repayment profile. However, as proved as recently as for the 2012 bullet repayment, internally generated cash is expected to be amply adequate to allow RasGas to meet its debt commitments without needing to access new funding sources.
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