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Fitch affirms RasGas II & 3 Bonds at 'A+'; Outlook Stable.

Fitch Ratings has affirmed Ras Laffan Liquefied Natural Gas Company Limited (II)'s (RasGas (II)) and Ras Laffan Liquefied Natural Gas Company Limited (3)'s (RasGas (3)) senior secured bonds at 'A+' with Stable Outlooks.

The obligations of each issuer are guaranteed by the other entity.

"Fitch considers RasGas' key strength its exceptionally high financial flexibility," said a media statement. "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 counterparty exposure, to unrated Petronet LNG (RasGas' single largest LNG customer with some 27 per cent of total LNG deliveries in 2012), Edison (BBB/Stable, around 16 per cent of 2012 LNG deliveries) and Endesa (BBB+/Negative, around 3 per cent 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 (around 15 per cent of total LNG output).

"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. The debt structure key rating driver is nevertheless assessed as Midrange because of the non-SPV nature of the issuer and also the transaction's standard structural features.

"The strength of the project's economics is testified by a debt service coverage ratio (DSCR) of 9.72x for the 12 months ending 31 March 2013, when RasGas' total debt service expense totalled around USD1.5bn (including the Series E USD500m bullet bond repayment plus associated sponsor co-lending). RasGas calculates the DSCR for 2014, the year with the highest debt service commitment (approximately USD2.5bn including bullet debt maturities), at a healthy 4.4x under a JCC price assumption of USD82/bbl. This is roughly in line with Fitch's base case expectations.

"Although RasGas' credit profile compares favourably with those of credits in the same rating category, the project's single site configuration and its technically complex nature combine to restrict the rating to 'A' category.

"A downgrade of the ratings could be triggered by average oil prices of USD70/bbl or less for more than a year, as such a situation may signal a drastic shift in market fundamentals compared to Fitch's current base case expectations. Other possible triggers for negative rating actions may be a marked deterioration in the overall credit quality of RasGas' LNG offtakers in conjunction with a material contraction in the spot LNG market or the occurrence of major operational issues. Fitch considers the closure of the Strait of Hormuz to be a low probability scenario. However, if this occurred, RasGas' operations would need to be halted promptly. Debt service would not be affected in the short term due to significant debt service reserves."

The rating actions are as follows:

Ras Gas (II) USD1,400m Series A senior secured bonds due 2020: affirmed at 'A+'; Outlook Stable

RasGas (3) USD850m Series B senior secured bonds due 2027: affirmed at 'A+'; Outlook Stable

RasGas (3) USD750m Series C senior secured bonds due 2016: affirmed at 'A+'; Outlook Stable

RasGas (3) USD800m Series D senior secured bonds due 2027: affirmed at 'A+'; Outlook Stable

RasGas (3) USD1,115m Series F senior secured bonds due 2014: affirmed at 'A+'; Outlook Stable

RasGas (3) USD615m Series G senior secured bonds due 2019: affirmed at 'A+'; Outlook Stable

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Publication:CPI Financial
Date:Jun 26, 2013
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