Fitch rates RasGas bonds at A+

Fitch Ratings has affirmed Ras Laffan Liquefied Natural Gas Company Limited’s (RasGas) senior secured bonds at ‘A+’ with Stable Outlooks.

“Fitch expects RasGas to be able to easily withstand the current oil price environment, due to its exceptionally high financial flexibility and competitive position,” Fitch said in a statement on Wednesday.

According to Fitch, these strengths are of critical importance in supporting the bonds’ ‘A+’ rating despite mostly Midrange individual key rating driver assessments. The Stable Outlook is supported by the company’s strong operating track record.

Gross Revenue Risk: Midrange

Fitch said it expects RasGas’s revenues in 2015 to be substantially lower than 2014 levels (USD27.8bn), due to lower oil prices and LNG selling prices. Revenues from condensates and other oil products (about one-third of total revenues) are expected to reflect the full decline of oil prices, while the decline in LNG revenues (two-thirds of total revenues) should be moderated by the contractual pricing formulas in long-term agreements.

Negative pricing pressures are accentuated by evolving developments in the LNG industry in the past year, such as weakening of demand in Asia, commissioning of new capacity (in Papua New Guinea in 2014 and Australia in 2015) and the emergence of new trading patterns such as shorter-term contracts, Fitch said.

However, these weaknesses and recent industry developments are mitigated by RasGas’s long-term agreements for the majority of its LNG output and its strong competitive position within the global LNG market. Fitch considers that the company’s extremely low oil and LNG break-even prices lend it substantial financial flexibility to withstand market downturns and operational stresses.

Given the lack of detailed information on the terms of the LNG sale and purchase agreements, the Fitch base case assumes LNG prices at 0.1x to oil prices and does not give benefit to contractual floor prices. Under such conservative assumptions Fitch forecasts the debt service coverage ratio (DSCR) at 1x in 2019 (when the next bullet repayment is due) at an oil price of USD35/bbl (LNG price of USD3.5/Mmbtu).

Fitch’s Midrange assessment of gross revenue risk for RasGas is due to its exposure to market price risk on its entire output. Some volume risk also exists in the form of spot market exposure on about 15% of output – around 5% of current LNG output is uncontracted and an additional 10% of LNG output will become uncontracted following the expiry of some long-term agreements in 2016/2017. RasGas is also exposed to the fairly weaker credit quality of some LNG offtakers, primarily Petronet LNG Ltd, which is the single largest LNG customer with 28% of total LNG deliveries in 2014.

Operating Risk: Midrange

The projects’ safety records remained robust in 2014, highlighting sound operational procedures. The LNG trains’ technical performance was positive, as demonstrated by high utilisation and reliability factors and stable production levels, according to Fitch.

LNG sales volumes for both 2014 and 2013 were 29.2 million tonnes, and condensates’ sales volumes were 63.9 million barrels compared with 64.5 million barrels in 2013. RasGas intends to maintain full production capacity despite current lower prices. Operation and maintenance expenses in 2014 were largely in line with budget.

The company’s positive operating track record, its five LNG train configuration and its ability to withstand major cost shocks support a Midrange assessment for operating risk. This is despite technology and operating costs risk factors being at the higher end of the spectrum within Fitch’s infrastructure and project finance rating universe.

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Image: RasGas