Fitch Ratings has affirmed Nakilat Inc.’s senior and subordinated bond ratings as follows:
USD850m series A senior secured bonds due 2033: affirmed at ‘A+’; Outlook Stable
USD300m series A subordinated second priority secured bonds due 2033: affirmed at ‘A-’; Outlook Stable
The rating affirmations reflect Nakilat’s stable operating and financial performance. Reported revenues of USD828m partly reflecting a pass-through of higher operating costs slightly exceeded Fitch’s expectations for 2013. EBITDA remains in line with Fitch’s base case.
Debt service coverage ratios (DSCR) calculated by Fitch were at 1.35x for the senior debt and 1.23x for subordinated debt for 2013, slightly above last year’s DSCR of 1.21x. Fitch expects the DSCSR for the senior and subordinate debt to average 1.37x and 1.20x respectively until debt maturity in 2033. These ratios are based on the assumption of 363 operating days, O&M cost growth in line with US CPI of 2.5%, a LIBOR of 5.4%, a successful refinancing in 2025 at equivalent terms and full amortisation of the new debt until 2033.
KEY RATING DRIVERS
Debt Structure – Midrange
The rated senior and subordinated bonds are part of a wider debt programme also comprising
USD4.39bn commercial bank facilities and USD1.18bn loans from export agencies. The export agencies loans are scheduled to fully amortise by 2020/2021, while the commercial bank facilities partially amortise with the remaining balance to be refinanced in 2025, exposing the bonds to a degree of refinancing risk.
However, the substantial deleveraging that will have taken place at the time of the refinancing, the lock-up provisions and the demonstrated ability by Nakilat to refinance at favourable terms well in advance of the scheduled time, and ultimately Nakilat’s strategic position in Qatar’s LNG industry all provide significant comfort that the project will be able to raise the required debt.
Revenue Risk – Stronger
Debt is repaid through availability-based charter payments subject to deductions for off-hire periods. The charterers are four Qatari upstream LNG producers (Rasgas and Qatargas 2, 3 and 4). The four projects display robust economics due to their low cost base, high financial flexibility and strong global demand for LNG.
Charter payments to Nakilat rank senior to debt service in the charterers’ priorities of payment, resulting in an extremely stable and secure revenue source for Nakilat.
All four LNG upstream projects have been established by the Qatari government through state-owned Qatar Petroleum, which also controls Nakilat.
Fitch views Qatar as a long-term, reliable and low-cost producer of LNG globally, which has invested heavily in LNG production and transportation in recent years. Nakilat provides an essential service for the charterers, through the shipment of LNG from Qatar to the consuming markets, making the project strategically important within the Qatari vertically integrated LNG industry.
Operating Risk – Midrange
The charter payments include a capital and an operational cost component and hence a pass-through of the main operational costs. Voyage costs such as fuel and port charges are directly borne by the charterers. Furthermore, Nakilat benefits from management support by Shell International Trading and Shipping Company, a highly experienced shipping contractor in the hydrocarbon sector. Nakilat’s plan is for management to be gradually transferred in-house post 2019.
Infrastructure Renewal Risk – Stronger
Nakilat’s new and modern fleet, long asset life and the absence of hand-back provisions at the end of the charter period reduce the need for major maintenance expenditure and repairs. Regular maintenance, including five-yearly dry-docking, has been adequately provisioned for in financial forecasts and the required amounts are accrued by daily distributions into the dry-docking reserve account. Notably, any works requested by the charterers to improve operating efficiency will be funded by the charterers and will not impact the project’s cash flows.
The ratings could be downgraded if Nakilat experiences a significant increase in non-pass-through operating costs. Further, a substantial deterioration of the credit quality of the charterers – Rasgas is currently rated ‘A+’/ Stable by Fitch – as a result of a protracted and material downturn in the LNG market would likely result in a rating downgrade. The Stable Outlook indicates that such risks are currently a remote prospect.
The bonds are part of debt raised to finance 90% of the USD7,459m delivered costs of 25 large
LNG tankers chartered to four upstream LNG projects (Qatargas 2, 3 and 4, and Rasgas) in Qatar under long term (25-year) time charter agreements.
Under Nakilat’s existing programme financing, Nakilat raised USD4.3bn of debt in December 2006 including the rated bonds (Tranche I), and two further tranches of additional debt, including USD1.5bn of debt in 2008 (Tranche II) and USD949m of debt in June 2009 (Tranche III) refinanced by USD917m Tranche IV debt in June 2013. The Tranche IV debt is partly amortising with a balloon of USD491m senior and USD92m of subordinated debt payable in 2025, co-terminus with the payment of USD1.8bn of senior and USD174m of subordinated Tranche I and II bank debt facilities. The lump-sum payment represents approximately 58% of the initial debt amount raised from commercial banks.
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