European Infrastructure Finance Yearbook - Investing In Bonds ...

More documents

Recommendations

Info

PROJECT FINANCE/PUBLIC-PRIVATE PARTNERSHIPS Publication Date: April 13, 2007 Primary Credit Analysts: Karim Nassif, London, (44) 20-7176-3677 Terry A Pratt, New York, (1) 212-438-2080 Secondary Credit Analyst: Michael Wilkins, London, (44) 20-7176-3528 122 ■ NOVEMBER 2007 CREDIT FAQ: RECENTLY UPGRADED NAKILAT PROVIDES CASE STUDY FOR CREDIT ANALYSIS OF LNG SHIPPING PROJECTS Our first-ever public rating on a liquefied natural gas (LNG) shipping entity was recently raised when Qatar-based Nakilat Inc. was upgraded to ‘A+’ with a stable outlook. The rating on Nakilat, a wholly owned subsidiary of Qatar Gas Transport Co. Ltd. (QGTC), was raised following the upgrade of the State of Qatar (AA-/Stable/A-1+). This reflected our continued expectation of strong potential extraordinary sovereign support for Nakilat in an event of stress. Since then, Standard & Poor’s Ratings Services has received several questions concerning our rating analysis of LNG shipping financings. Currently Nakilat is the only publicly rated LNG shipping entity and so, understandably, it represents the best case study of our rating approach. This article attempts to answer the most frequently asked questions we have been receiving concerning Nakilat and our general credit analysis of LNG shipping financings. Further information can also be read in the article titled “Global LNG Shipping Projects May Be On Course For Investment Grade,” published on March 6, 2006, on RatingsDirect. Frequently Asked Questions What are the major factors that underpin Standard & Poor’s approach to rating LNG ship financings? Generally our approach is to consider LNG shipping as an integral part of the complete LNG supply chain, which starts from natural gas development and production from the gas field, moves through liquefaction of the natural gas, and ends with regasification at the import terminals and then sale to the end markets. The two key elements that underpin our approach are counterparty risk and the legal structure (including construction and charter agreements). Counterparty risk. One of the key elements determining the rating for LNG ships is related to counterparty risk, specifically to the upstream project producing the LNG. In most, if not all, cases the project is the source of payments to the shipper. If the project fails, the alternative use for the LNG ships is still limited given the absence of a large LNG spot market. As a result, the credit quality of the underlying LNG project usually provides one of the key constraints for the rating of the LNG ship STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK financing. The upstream project is often also the charterer under the charter agreement. If there is an alternative charterer other than the project company the credit quality of the alternative charterer would also be important, because it provides a measure of the certainty and reliability with which cash flows will be earned by the vessel owners under the charter agreement for the purposes of repaying debt. There is also a counterparty risk inherent in the construction of ships. The credit quality, experience, transaction support through thirdparty liquidity, and reputation of the shipbuilder are also essential elements, therefore, in the overall analysis of an LNG shipping project. Legal structure (including construction and charter agreements). The second key element in our analysis is the risk to lenders that arises based on the charterparty contract and construction contracts. For an investment-grade rating we would expect the charterparty contract to last through the debt tenor and guarantee availability-based fixed payments with inbuilt escalation clauses to cover growing operating and material costs. For construction contracts we would expect fixedprice, date-certain arrangements with established shipbuilders coupled with shipbuilder-completion guarantees. Most LNG ship financings we have reviewed have been structured as projects and have used special purpose entities (SPEs). There are specific contracts and documentation for single ships, although often several ships are operated as a group. In effect, the financings have involved a portfolio of ships with the contractual nature being determined on a ship-by-ship basis. For the single ships we look to our project finance criteria in analyzing underlying risks given the single-asset nature of the SPEs and the contractual structure. In many cases, however, there is a holding company sitting on top of the SPE that ultimately owns multiple ships, albeit through an SPE structure. The review of the holding company as part of a portfolio review might, therefore, require more of a corporate analysis. Ultimately, a portfolio of LNG ships is often presented as a hybrid structure featuring both project and corporate features. Our rating analysis, therefore, has to take into account these unique features.
What approach did you take when analyzing Nakilat? We regard Nakilat as more of a corporate entity than a typical project financing, due to the strong corporate features inherent in the transaction. Ultimately our ratings on Nakilat reflect the mainly corporate nature of the entity. Although some features of its lending package are structured like a corporate, however, its cash flow arises from asset-specific features. We, therefore, also analyzed some aspects of the transaction as if it were a project. We also consider Nakilat to be a governmentrelated entity. Our conclusion of this government link is supported by the importance of Nakilat’s LNG ships to Qatar’s economy and the state’s strategic plans to maintain its leading position as the world’s No. 1 LNG exporter. The overall capital investment by the Qatari state and its partners in the LNG sector (upstream, midstream, and downstream) is expected to total just over $65 billion by 2010. Qatar and QGCT plan to use the Nakilat LNG ships on some of the major LNG projects in Qatar. These include Ras Laffan Liquefied Natural Gas Co. Ltd. (3) (senior secured debt A/Stable), Qatar Liquefied Gas Co. Ltd. (QatarGas) 2, QatarGas 3, and QatarGas 4. The government is involved directly through its ownership of Qatar Petroleum (AA-/Stable/--), which is a majority owner of the LNG projects. Therefore, the ratings on Nakilat are linked to the credit quality of the Qatari state (currently rated AA-/Stable/A-1+). Nakilat’s financial profile is weak for the ratings but its business profile and strategy are very strong. Given the company’s important role in the Qatari LNG sector, which is a strategic sector for the nation’s GDP growth, we expect that as long as the government stands behind its LNG and gas monetization strategy, it will support Nakilat. The one-notch differential between the corporate credit rating on Nakilat and the sovereign rating on Qatar reflects the absence of explicit financial state support in the form of a guarantee or equivalent, despite implicit state support for the entity. STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK PROJECT FINANCE/PUBLIC-PRIVATE PARTNERSHIPS What impact did the Qatari sovereign upgrade have on the Nakilat ratings? Following the upgrade of Qatar we raised our corporate credit rating on Nakilat to ‘A+’ with a stable outlook. The subordinated debt was also raised, to ‘A’. The senior secured debt rating was affirmed at ‘A+’. The one-notch increase in the corporate credit rating reflected the one-notch increase in the rating on Qatar and our top down approach for Nakilat as a government-related entity. The corporate credit rating continues to reflect our unchanged expectation of potential strong extraordinary sovereign support for Nakilat in an event of stress. The senior secured debt rating (previously one notch above the corporate credit rating) remained unchanged because, although the available security package and debt structures have not changed, the higher corporate rating on Nakilat now means that the added value of the security package relative to the rating is reduced. Similar sovereign support for the subordinated debt is expected as for the senior debt, and for that reason a one-notch differential between the corporate and subordinated debt ratings was maintained. How does the sovereign rating influence the ratings on LNG ship projects? In the case of Nakilat, the importance of LNG for Qatar and the implicit support provided by the state through the involvement of Qatar Petroleum along the supply chain supports our conclusion that Nakilat is a government-related entity. In a sense Nakilat is a unique entity given the state of Qatar’s LNG strategy. In other instances where state support is not deemed as significant, a project might not receive the same benefits of state support as Nakilat and the focus will therefore be more on that project’s own strengths and weaknesses. As noted above, the creditworthiness of the LNG shipping deal would be affected by the credit profile of the underlying LNG supply project. For a project to obtain rating uplift toward a sovereign rating, the strategic rationale for the country’s LNG sector must be very strong--that is, material to that country’s government. In other words, the NOVEMBER 2007 ■ 123
Page 1 and 2:
November 2007 Infrastructure Financ
Page 3 and 4:
CONTENTS Introduction STANDARD & PO
Page 5 and 6:
INTRODUCTION 2007: New Challenges A
Page 8 and 9:
ject Finance Rating Distribution: I
Page 10 and 11:
COMMENTARY Publication Date: Sept.
Page 12 and 13:
(Bil. ) 140 120 100 80 60 40 20 0 F
Page 14 and 15:
UTILITIES EUROPEAN UTILITIES Once a
Page 16 and 17:
UTILITIES approach to ownership unb
Page 18 and 19:
UTILITIES 16 ■ NOVEMBER 2007 tran
Page 20 and 21:
UTILITIES 18 ■ NOVEMBER 2007 Limi
Page 22 and 23:
UTILITIES 20 ■ NOVEMBER 2007 •
Page 24 and 25:
Publication Date: osenergoatom (sta
Page 26 and 27:
UTILITIES 24 ■ NOVEMBER 2007 Tabl
Page 28 and 29:
UTILITIES 26 ■ NOVEMBER 2007 supp
Page 30 and 31:
UTILITIES 28 ■ NOVEMBER 2007 pres
Page 32 and 33:
UTILITIES 30 ■ NOVEMBER 2007 Tabl
Page 34 and 35:
UTILITIES 32 ■ NOVEMBER 2007 The
Page 36 and 37:
UTILITIES 34 ■ NOVEMBER 2007 thei
Page 40 and 41:
UTILITIES 38 ■ NOVEMBER 2007 Evol
Page 42 and 43:
UTILITIES Publication Date: Aug. 29
Page 44 and 45:
UTILITIES Publication Date: Nov. 12
Page 46 and 47:
UTILITIES Publication Date: Sept. 3
Page 48 and 49:
UTILITIES Publication Date: Aug. 17
Page 50 and 51:
UTILITIES Publication Date: Sept. 3
Page 52 and 53:
UTILITIES 50 ■ NOVEMBER 2007 stro
Page 54 and 55:
Publication Date:
Page 56 and 57:
TRANSPORTATION INFRASTRUCTURE 54
Page 58 and 59:
TRANSPORTATION INFRASTRUCTURE Publi
Page 60 and 61:
Page 62 and 63:
Page 64 and 65:
TRANSPORTATION INFRASTRUCTURE BAA L
Page 66 and 67:
Page 68 and 69:
Page 70 and 71:
Page 72 and 73:
Page 75: Termination events under the swap a
Page 78 and 79: TRANSPORTATION INFRASTRUCTURE 76
Page 88 and 89: TRANSPORTATION INFRASTRUCTURE Publi
Page 92 and 93: TRANSPORTATION INFRASTRUCTURE Publi
Page 94 and 95: PROJECT FINANCE/PUBLIC-PRIVATE PART
Page 146 and 147: RATINGS LIST RATINGS LIST Utilities
Page 148 and 149: RATINGS LIST Transportation Infrast
Page 150 and 151: RATINGS LIST Project Finance Name I
Page 152 and 153: CONTACTS KEY ANALYTICAL CONTACTS Fr
Page 154: ARGENTINA AUSTRALIA BRAZIL CANADA C
show all

European Infrastructure Finance Yearbook - Investing In Bonds ...

Create successful ePaper yourself

Delete template?

Save as template?