Support Track Record and Expectations - Strong
The company's financial position is very healthy and has not warranted any form of state support to date. RasGas (II) and (3) are structured as a ring-fenced project without explicit sovereign guarantees. We expect state support to RasGas (II) and (3), in case of need, to be provided through Qatar Petroleum rather than by directly servicing the entity's debt.
Socio-Political Implications of Default - Strong
RasGas (II) and (3) are a vital component of Qatar's hydrocarbon sector, on which the country is heavily dependent. RasGas (II) and (3) contribute about 40% to Qatar's LNG output. Hydrocarbons are the cornerstone of Qatar's economy, with oil and gas extraction averaging 50% of GDP and 80% of external receipts and government revenue. RasGas (II) and (3) would likely continue operations even if it fails to meet its debt service as it requires no additional funding above maintenance expenditure.
Financial Implications of GRE Default - Strong
We deem a default of RasGas (II) and (3) would have a significant impact on the availability and cost of foreign financing options for Qatar.
Standalone Rating 'A+'
Fitch assesses RasGas (II)'s and (3)'s standalone credit quality at 'A+' due to the Company's exceptional financial flexibility, demonstrated by a minimum Fitch rating case (FRC) debt service cover ratio (DSCR) of 3.42x in 2019, before increasing to above 7x, and also to the company's strong competitive position within the global LNG industry to withstand major market downturns.
Low-Cost Production Underpins Volumes: Revenue Risk - Midrange
RasGas (II) and (3) are exposed to market price risk on its entire output as its contracts are linked to oil prices. However, the Company's extremely low oil and LNG break-even prices lend it substantial financial flexibility to withstand market downturns and operational stresses. Long-term agreements are in place for the majority of LNG output. Historically, RasGas (II) and (3) have sold up to 25% of volumes on a spot basis, diverting LNG cargoes.
RasGas (II) and (3) are exposed to the weaker credit quality of some LNG offtakers, namely Petronet LNG Ltd and Bangladesh Oil, Gas and Mineral Corp (Petrobangla), which received its first LNG cargoes in 2018. The two off-takers represent a share of up to 30% of contracted volumes. The contracts are backed by letters of credit from banks with high credit ratings, which mitigate risks to the financial standing of the counterparties. We further believe that the company's strong competitive position within the global LNG market should allow the company to find alternative off-takers, if needed.
Long Operating Track Record and Operational Flexibility: Operation Risk - Midrange
The company's positive operating track record, five LNG train configuration and ability to withstand major cost shocks mitigate technology and operating cost risks.
Sufficient Resources: Supply Risk - Stronger
RasGas (II) and (3) extract gas from the offshore North field, the largest producing non-associated gas field in the world. The initial reserve study by NSAI estimated proved reserves to be sufficient to meet the company's base case plateau production beyond the company's longest debt maturity in 2027. Fitch does not receive updated reserve studies but has not seen evidence to expect significant deviation from the initial reserve study.
Largely Amortising Debt: Debt Structure - Midrange
The class G bond and associated sponsor co-lending tranche, due in 2019, are the only bullet maturities left and are expected to be repaid without the need to access new funding sources. The remaining outstanding debt is in amortising form and matures in 2027 and RasGas (II) and (3) do not currently plan to issue any additional debt. The debt structure benefits from a combination of standard structural features, a fairly high lock-up ratio of 2x, a long tail of seven years, but lacks security over the project's assets or agreements due to local regulations.
Fitch expects debt metrics to remain solid, helped by some cost savings resulting from the integration of RasGas Operating Company Limited (RasGas Opco) into Qatargas Operating Company Limited (Qatargas Opco). Under FRC, which assumes long-term stress case oil price of USD50/bbl as well as output and cost stresses, average DSCR over 2019-2023 is 10.5x with a minimum of 3.4x in 2019 when the class G bond bullet and associated sponsor co-lending tranche are repaid from operational cash flows. The FRC forecasts average DSCR over the whole remaining debt life until 2027 at 11x.
Nakilat Inc is a vessel operator servicing the Qatari LNG industry and its senior debt is rated 'A+'/Stable. Nakilat is also rated under the GRE criteria and the strength of the linkage with the State of Qatar is viewed as moderate to strong in line with RasGas (II) and (3). However, the incentive to support is assessed as moderate compared with our strong assessment for RasGas (II) and (3) as socio-economic and financial implications of a default are deemed less severe than a default of RasGas (II) and (3) given the role of the company in Qatar's LNG value chain. As a result RasGas (II) and (3)' rating is equalised with that of the sovereign while Nakilat is rated two notches below.
Future Developments That May, Individually or Collectively, Lead to Negative Rating Action:
-A downgrade of Qatar's sovereign rating.
-A reduction in implied support and commitment from the government, as well as importance to and ownership by Qatar, which would prompt a review of the ratings.
-Deterioration of the company's standalone credit quality significantly increasing leverage or sustained deterioration of the company's operational performance, which could result in a downgrade.
Future Developments That May, Individually or Collectively, Lead to Positive Rating Action:
-Revision of the Outlook on Qatar's sovereign rating to Positive or an upgrade of the sovereign rating.
RasGas (II)'s and (3) 's technical performance is stable, as demonstrated by high utilisation and reliability factors above 97% and stable production levels close to 30 million tonnes per annum. RasGas (II)'s and (3)'s revenue increased to USD18.5 billion in 2018 from USD14 billion in 2017, driven by an increase of oil and LNG selling prices. LNG spot sales made up around 17% of total revenue in 2018. Debt metrics remain strong with the DSCR at 10.5x in 2018, well above Fitch's base case (FBC) expectation, reflecting stable sales and a recovery in oil prices.
The operational integration of RasGas Opco with Qatargas Opco is completed resulting in operating efficiencies, in particular, in the support functions and by pooling vessels and sharing deliveries.
Qatar Petroleum plans to build additional LNG trains at Ras Laffan Industrial City, taking the total liquefaction capacity to 110 mtpa from 2024, when all the trains are expected to be completed, from approximately 77 mtpa currently. Gas from the North Field will supply feedstock for the expanded capacity. We view this as credit-neutral to RasGas (II) and (3) as these facilities will be outside the project perimeter, the shared resources are sufficient to meet the increased liquefaction capacity and RasGas (II) and (3) debt will largely be repaid at the point of completion of the new LNG trains.
Under FBC we apply oil price projections at USD65/bbl in 2019, and USD57.6/bbl in 2022 based on Fitch's oil price deck, a LNG price to oil conversion factor of 0.11x and inflation of 2%. Sales volumes and operating costs are based on the company budget with a stress of 2% and 10% respectively. The FBC results in an average DSCR of 14.3x between 2019 and 2023 and 14.4x over the full debt term. The minimum DSCR of 4.9x occurs in 2019 when a large bullet payment is due.
Under FRC, Fitch's stress case oil price assumptions are used instead with USD50/bbl in 2019 and USD45/bbl in 2020, USD50/bbl in 2022 and USD47.5 from 2021. The LNG price to oil conversion factor is 0.12x and inflation assumptions mirror the FBC. Sales volumes are stressed by 9% compared with the company budget and operating costs by 15%, resulting in forecast average DSCR of 11x over the whole remaining debt life until 2027. A minimum DSCR of 3.4x occurs in 2019.
RasGas (II) and (3) are Qatari LNG liquefaction companies engaged in the upstream production of natural gas, gas treatment and liquefaction, and the export of natural gas in liquid form. RasGas (II) and (3) operate three 4.7 mtpa LNG trains (Trains 3, 4 and 5 - RasGas 2) and two 7.8 mtpa LNG trains (Trains 6 & 7 - RasGas 3) at the Ras Laffan Industrial City of Qatar. RasGas (II)'s and (3)'s aggregated notional capacity is 29.7 mtpa. The project derives over 70% of its revenue from the sale of LNG and the rest from associated products (primarily condensates and LPG). LNG is mostly sold under 20 to 25 years "take-or-pay" sale & purchase agreements to a diversified pool of off-takers.
+44 20 3530 1396
Fitch Ratings Limited
30 North Colonade
London E14 5GN
+44 20 3530 1729
+44 20 3530 1815
Media Relations: Athos Larkou, London, Tel: +44 20 3530 1549, Email: email@example.com.
Additional information is available on
Government-Related Entities Rating Criteria (pub. 29 Mar 2019)
Rating Criteria for Infrastructure and Project Finance (pub. 27 Jul 2018)
Dodd-Frank Rating Information Disclosure Form
Copyright © 2019 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001
Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see ), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.