Qatar's Nakilat financing sets new benchmarks

The $4.3 billion debt financing, completed in December 2006, was used to fund the construction of 16 LNG vessels to be chartered to QatargasII and Qatargas 3 for which Nakilat has entered into construction contracts. The debt financing that Nakilat achieved while being complex was competitive and provides flexibility for financing additional LNG vessels using the same financing structure. The debt financing comprised (i) $850 million of Senior Bonds and $300 million of subordinated bonds with a 27 year final maturity sold in a 144A offering (24% of total financing); (ii) $2.21 billion senior bank facility and $174 million subordinated bank facility with a final maturity of 19 years (51%); and (iii) $725 million of Korean Export Credit Agency financing provided by KEXIM and KEIC (15%).

Nakilat Inc has been awarded nine more 25-year time charters by RasGas 3 and Qatar Petroleum to add to its growing fleet of state-of-the-art large LNG carriers. A second $2.5 billion fundraising to fund the additional 9 vessels, is likely to be launched at the end of 2007 or early 2008. These acquisitions increase the Nakilat fleet to 25 wholly-owned large LNG carriers. In addition to the wholly-owned ships, QGTC has an ownership stake (43% on average) in 29 other LNG vessels, all of which are backed by long term time charters.

According to Muhammad Ghannam, QGTC's Managing Director, Nakilat's 25 wholly-owned vessels, once delivered from the shipyards between August 2008 and February 2010, will be dedicated to the carriage of LNG for the Qatargas II, Qatargas 3, RasGas 3 and Qatargas 4 projects, which will increase total Qatar LNG production to over 77 mmtpa by 2010.

Says Ghannam: "The Nakilat Inc financing is a landmark transaction and represents the first time in the history of LNG vessel financing wherein such a large number of LNG vessels have been financed at one go. The financing is underpinned by strong charter contracts that the LNG vessels with Qatari LNG projects and therefore demonstrates the success of Qarari LNG supply as well as future prospects for growth. Moreover, Nakilat Inc is the first LNG shipping company to raise financing from the bond markets. Moving forward, we look forward to closing the financing for the subsequent 9 vessels and will continue to strive to identify additional high-yield investment opportunities to maximize returns to our shareholders."

Rajeev Kannan, Group Head of Structured Finance Asia, who successfully led SMBC's financial advisory team for the transaction, was happy that the transaction was able to achieve a ground breaking financing structure that would be the baseline against which future ship financings will be measured.

Says Kannan: "The Nakilat Inc financing was innovative and challenging since there were a number of significant "firsts" in the transaction - the first time a program approach was used to finance a fleet of LNG vessels and simultaneous financial close of various funding sources - bank debt, bonds and export credits. The financing marked the first instance for LNG vessel debt fiancing to achieve 90% gearing and tenors of up to 27 years from financial close. Moreover, Nakilat Inc received credit ratings for senior debt on par with Qatar's sovereign ratings from all three rating agencies (S&P, Moody's and Fitch). "

SMBC served as overall financial advisor, while Lehman Brothers and Credit Suisse led the bond issue. Barclays Capital, BNP Paribas, DnB NOR and Gulf International Bank worked as bookrunners on the commercial debt tranche that consisted of 22 banks, and KEIC and KEXIM provided export credits. Latham & Watkins advised Nakilat on commercial and legal matters while Skadden, Arps, Slate, Meagher & Flom advised the lending group. Independent consultants on the deal included Lloyd's Register EMEA, Drewery Shipping Consultants, Marsh Ltd, and Stone & Webster Consultants. Holman Fenwick & Willan advised Nakilat Inc. and QGTC on time charter, ship building and ship management contracts.