The rating actions reflect the close operational and strategic ties that link Nakilat’s debt ratings to the state of Qatar (AA/Stable), as assessed by Fitch’s Parent and Subsidiary Rating Linkage criteria. Qatar’s strong dependence on the revenue from its hydrocarbon sector, of which Nakilat Inc is a vital operational element, puts the project in an exceptionally strong position in terms of criticality of support. The Stable Outlooks reflect the stable operating and financial performance of Nakilat and the state of Qatar.
The parent/subsidiary relationship with the state of Qatar is established through the strong representation of the government at Nakilat Inc’s parent company QGTC’s board and the vertical integration of Nakilat into the LNG supply chain, with revenues coming from majority state-owned LNG producers Rasgas and Qatargas.
Nakilat’s senior debt is rated ‘A+’, two notches down from Qatar’s rating. This differential adequately reflects the operational risks inherent in the project, including the need to refinance in 2025. While support from the state of Qatar is expected to be forthcoming in case of need, forms of support may be routed through QGTC or Qatargas and Rasgas rather than directly from the government.
Furthermore, the structuring of Nakilat Inc as a ring-fenced project without an explicit sovereign guarantee reflects a degree of standalone financing.
Although it is unlikely that the state-owned LNG producers would not honour their contractual obligations, as market dynamics in this sector change there is a possibility that Nakilat’s contracts could be increasingly outdated compared with market conditions, as with all long-term charter agreements, and either party could seek to renegotiate them. If market conditions pressure these discussions, the lack of an explicit guarantee would come to the fore.
Fitch acknowledges that Qatari support for Nakilat Inc and its operational purpose, which is crucial to the viability of the domestic economy, may not be equivalent to the servicing of the entity’s debt. These risks are reflected in the ‘A+’ rating being two notches down from the sovereign rating.
The junior debt is one notch lower than the senior debt reflecting the subordinated debt service and security position. Fitch expects the Qatari authorities to support all Nakilat debt, and a single notch sufficiently reflects the subordination of the second tranche. As a result the junior debt rating has been upgraded to ‘A’ from ‘A-‘.
Fitch considers Nakilat’s standalone credit quality to be consistent with the ‘A’ category based on its robust revenue structure, financially strong off-takers and stable operating performance. This assessment is in line with the ratings of Nakilat’s senior and junior bonds during previous rating reviews.