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)) (together, RasGas) senior secured bonds at ‘A+’ with Stable Outlooks. The obligations of each issuer are guaranteed by the other entity. A full list of rating actions is at the end of this comment.
RasGas benefits from a robust technical performance and favourable market conditions, resulting in a debt service coverage ratio (DSCR) of 15.6x for the 12 months ended 31 March 2012, up from the already strong 12.1x for the same period in 2011. However, the project’s single site and its linkage to Qatar’s sovereign risk combine to restrict the rating to the ‘A’ category. The Stable Outlook is supported by the lack of operating problems and the strong outlook for liquefied natural gas (LNG) demand globally.
RasGas is successfully navigating the weakness of the US gas market, originally the supposed destination for approximately 25% of Rasgas’ LNG volumes, by diverting LNG cargoes into other regions yielding better returns. RasGas has benefited from increased LNG demand in Europe and Asia which has offset the dramatic reduction in US LNG demand. The same applies to a portion of the deliveries under European spot price-indexed contracts containing divertibility clauses. This resulted in spot sales and short-term sale and purchase agreements (SPAs) further increasing during 2011 to reach a record level of around 26% of total cargoes (up from 21% during 2010). High oil prices and strong global demand for natural gas currently mitigate any potential risk steaming from such weaker offtake structure.
RasGas will be exposed to greater LNG volume competition over the medium term as a consequence of the planned expansion in global liquefied natural gas (LNG) capacity, particularly from Australia and further exploitation of nonconventional gas resources. However, Fitch considers RasGas to be well placed to weather possible downturns in market conditions thanks to its exceptionally strong competitive position. This is based on a low and stable cost structure, access to abundant gas resources and extremely low oil and natural gas break-even prices.
The same considerations mitigate the concerns relating to the exposure to lower-rated Petronet LNG (‘AA(Ind)’/Stable), which in 2011 was Rasgas’ main customer with some 28% of total LNG deliveries. The offtaker also provides security to the project in the form of letters of credit and security interest in Petronet’s back-to-back gas sales and purchase agreements.
The bullet maturities in the Series E, F and G bonds introduce stress in the repayment profile. However Fitch considers the overall financial risk acceptable for the current ratings. The class E repayment amount (due in September 2012) has been fully reserved for out of operating income. Fitch understands that RasGas expects to also meet future bullet maturities from internally generated cash flows without the need to refinance due to the strong cash flows.
Fitch said it could downgrade the ratings if oil prices average $65/bbl or less for more than a year, if there is a marked deterioration in overall credit quality of RasGas’ LNG offtakers, a contraction in the short term LNG market as a result of new producers entering into long term contracts or the occurrence of major operational issues.
RasGas (II) and RasGas (3) are 70% owned by Qatar Petroleum and 30% by ExxonMobil and operate five LNG trains with a combined production capacity of approximately 30mtpa. The companies extract gas under a long-term development and fiscal agreement and produce liquefied natural gas, condensate and by-products through offshore and onshore facilities, which are then sold globally