S&P assigns RasGas III bonds ?A? long-term rating

Global credit rating agency Standard and Poor?s (S&P) has assigned ?A? long-term senior secured debt rating to RasGas III bonds totalling $1.86bn.
The bonds are guaranteed by the (RasGas II; collectively, RasGas) and the outlook is stable, the rating agency said in a statement.

The proceeds from the bonds, as well as up to $795mn of new shareholder loans from an affiliate of ExxonMobil, will make up the $2.65bn of new funding being raised under Tranche 2 of the $10bn financing programme launched in August 2005, S&P said. The proceeds from Tranche 2 will be used for the continued expansion of the RasGas LNG project.

The funds will support offshore developments; the completion of Train 5; ongoing construction of Trains 6 and 7; the building of shared facilities such as condensate, liquefied petroleum gas (LPG) and liquefied natural gas (LNG) tanks, and LNG and liquid berths; and the repayment of inter-company loans from RasGas II to RasGas III, it said.

RasGas II is a three-train (trains 3, 4, and 5) liquefied natural gas (LNG) company with a reported production capacity of about 14.1mn metric tonnes per year (mtpy). It is 70% owned by Qatar Petroleum and 30% by ExxonMobil RasGas, a wholly-owned subsidiary of ExxonMobil Corp.

RasGas III is a two-train (trains 6 and 7), 15.6mtpy-capacity LNG company, 70% owned by QP and 30% by ExxonMobil Ras Laffan (III), another wholly-owned subsidiary of ExxonMobil.

The ?A? debt rating on the bonds incorporates a range of weaknesses, including the potential volatility of LNG revenues, due to price links between sale and purchase agreements (SPAs) for LNG output and global oil price benchmarks (and some European gas benchmarks) and high counterparty risk, given that many SPA counterparties have lower credit quality than RasGas? senior debt.

There also remains the threat of a conflict in the Middle East that could disrupt LNG production and delay deliveries beyond six months - the period for which the debt service reserve can be used to meet debt obligations.

The rating also reflects the limited credit support provided by the structural features of this financing, which are weaker than those of most comparable projects financing.

These weaknesses are offset by a composite of credit strengths, including: the elimination of most potential sales-volume risk by the presence of long-term SPAs, which cover the majority of production from Trains 3, 4, and 5; and the likelihood that RasGas 3 will sell the LNG produced from Trains 6 and 7 under long-term SPAs.

"RasGas has a competitive cost structure, which results in forecast debt service coverage ratios under most stress scenarios," said S&P credit analyst Karim Nassif.

"In addition, the project?s breakeven oil and gas prices for debt servicing are compellingly low, at less than $11 per barrel of oil, and less than $2 per million British thermal unit of gas, which will further limit default risk," he added.

S&P expects favourable natural gas fundamentals in RasGas?s target markets over the next five years, good spot market sales potential over the next three years, and strong operational performance ? all of which lead to expectation of strong debt service coverage ratios.

"We expect the remainder of the 15.6mtpy output of trains 6 and 7 not covered by contracts with Chinese Petroleum Corporation and Petronet LNG to be accounted for by a long-term SPA with an affiliate of ExxonMobil, or other parties of reasonable credit standing," it said.

"Ratings upside potential is limited over the short term, given the substantial amount of construction activity remaining and the relatively weak creditworthiness of off-takers (recipients)," Nassif said.

"Any improvement in the ratings over the long-term will likely be limited by the project?s weak structural and security arrangements," he added.

However, S&P also cautioned that the outlook could be revised to negative, or the ratings lowered, if construction problems delay the commissioning of RasGas infrastructure or related works, off-taker credit declines, SPAs come under pressure, or global LNG markets deteriorate.

Source: Gulf Times, Doha, September 8, 2006
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