European Infrastructure Finance Yearbook - Investing In Bonds ...

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