Global Arab Network | Moody's affirms Qatar-based Ras Laffan bonds at Aa2; outlook stable

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Moody's affirms Qatar-based Ras Laffan bonds at Aa2; outlook stable

Global Arab Network - - Mohamed Tamer

Wednesday, 02 December 2009 15:27

Moody's Investors Service has today affirmed Aa2 ratings of the USD800 million of amortising senior secured bonds due 2014 (the "Bonds", stated at their original face amount) issued by Ras Laffan Liquefied Natural Gas Company Limited ("Ras Laffan"). The outlook is stable.

Ras Laffan, located in Qatar, engages in the upstream production of natural gas, gas treatment and liquefaction, and the export of natural gas in liquid form. A number of valuable products associated with the production of liquefied natural gas ("LNG") are also produced in commercial quantities, including field condensate, plant condensate and liquefied petroleum gas. Ras Laffan operates two LNG liquefaction trains with an aggregate capacity of 6.6 million tonnes per annum ("mta"); LNG production commenced in 1999. Ras Laffan sells LNG to Korea Gas Corporation ("Kogas", rated A2/stable) under the terms of a sale and purchase agreement for up to 4.92 mta, which runs until 2024. The balance of LNG production is sold into the spot market. Ras Laffan derives approximately 25% of its aggregate revenues from the sale of condensate and other liquid by-products.

"The rating affirmation of the Bonds incorporates Moody's updated view that the baseline credit assessment for Ras Laffan is now within a range of 5-7, equivalent to the A rating category," says Andrew Davison, Vice President - Senior Credit Officer in Moody's Project Finance Group.

Moody's categorises Ras Laffan as a Government Related Issuer, and Moody's applies its Joint Default methodology accordingly. The Aa2 ratings of the Bonds reflect: (1) Ras Laffan's baseline credit assessment of 5-7 (equivalent to a rating in the A category);
(2) Moody's sovereign rating of the State of Qatar (rated Aa2/stable);
(3) a high probability of government support; and
(4) and a high degree of default dependence, reflecting the degree to which economic conditions that might precipitate a government default would also force the issuer to default. Moody's Joint Default methodology leads to a significant ratings uplift from the baseline credit assessment for the Bonds.

Moody's baseline credit assessment for Bonds reflects:
(1) the project's strong operational and financial performance;
(2) the project's robust ability to withstand residual commodity price risk;
(3) counterparty performance and credit risk exposure to Kogas;
(4) project finance structural features;
(5) concentration of physical assets; and
(6) the strategic importance of the project to its shareholders, their experience and capabilities, and the very low probability of abandonment.

Moody's assesses the probability of government support as high (i.e. within a range of 71% to 100%), reflecting the fact that Ras Laffan plays a central role in the development of Qatar's economy, which is largely planned around increasing gas exports. Other factors include a high degree of tolerance for government intervention in Qatar and the adverse impact that a default by Ras Laffan would have on the government's ability to attract foreign investment into other sectors of the economy.

Moody's assesses the degree of default dependence as high, reflecting the fact that a large proportion of the revenues of the State of Qatar are composed of oil/gas export receipts.

The stable rating outlook for the Bonds reflects Moody's rating outlook for the State of Qatar, which is stable.

Global Arab Network

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