Fitch Ratings has affirmed Nakilat Inc’s (Nakilat or the project) ratings at A+ and A-. The bonds comprise $850million series a senior secured bonds due 2033: affirmed at ‘A+ with outlook stable and $291million series a subordinated second priority secured bonds due 2033 affirmed at’A- with outlook stable.
The affirmations reflect the project’s stable performance, which is in line with expectations. Reported revenues of $825million and operating costs of $133million are in line with expectations for 2011, the first full year of operating the 25-vessel strong fleet, demonstrating satisfactory vessel availability and operating performance, although Fitch notes that no technical or operating reports providing third-party confirmation are due and available. Based on the financial statements for 2011, Fitch calculates the total debt service cover ratio (DSCR) at 1.23x. A calculation of separate DSCRs for the senior and the junior debt is not possible given information availability.
The ratings are supported by Nakilat’s integration within the Qatari liquefied natural gas (LNG) industry, the pass-through of the key operating costs, the diversification provided by a 25-vessel strong, modern fleet and the largely fixed-rate nature of the project debt matching the revenue stream derived from availability-based charter payments.
Nakilat’s vessels provide an essential service for the charterers, four upstream LNG producers (Qatargas 2, 3 and 4, and Rasgas), through the shipment of LNG from Qatar to the consuming markets, making the project strategically important within the Qatari vertically integrated LNG industry. 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. All four LNG upstream projects have been established by the Qatari government through state-owned Qatar Petroleum (which also controls Nakilat) and have been granted long-term extraction and production rights to source natural gas in the abundant North Field. The four projects are regarded as highly profitable and stable enterprises with very low cost bases. Fitch also notes that 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.
In addition, 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. Nakilat also benefits from the management support by Shell International Trading and Shipping Company, a very experienced shipping contractor in the hydrocarbon sector.
The bonds are part of a debt programme to finance 90% of the $7.459 bilion delivered costs of 25 large LNG tankers to be chartered to upstream LNG projects in Qatar. The bond proceeds have been on-lent to separate vessel owners, wholly owned by Nakilat Inc. Each vessel owner in turn guarantees Nakilat’s obligations.
The ratings could be downgraded if Nakilat was to experience a significant increase in non-pass-through operating costs or if there was a protracted and material downturn in the LNG market affecting the charterers and ultimately Nakilat. The Stable Outlook indicates that Fitch currently does not consider such risks to be a concern.