Qatar-based QAFCO 'A+' CCR affirmed despite high fifth train build-out costs; outlook stable

'We expect QAFCO to proceed with the build-out of its fifth production train (QAFCO-5), despite higher costs than originally planned,' said Standard & Poor's credit analyst Sophia Dedemadis.

'Positively, however, QAFCO will only modestly increase the intended financing, to about $1.6bn, including a sizable committed revolving credit facility,' Ms. Dedemadis added.

The delay in the start of construction and current strong market conditions will offset a large part of the higher costs. The company expects to use free cash flows from operations to partly fund the higher costs and is committed to reducing the dividend in the case of weaker cash flows.

With completion targeted for 2011, QAFCO-5 is forecast to increase overall plant production capacity by more than 50%. Standard & Poor's understands that QAFCO is finalizing a lump sum turnkey engineering, procurement, and construction contract, which would mitigate the execution risk of the build-out.

'Standard & Poor's expects that QAFCO will maintain its satisfactory business risk profile, supported by continued strong FFO generation,' said Ms. Dedemadis. 'Additionally, we expect QAFCO to sustain modest financial credit protection ratios throughout the investment phase of the planned expansion of its production plant.'

A failure to execute the business plan due to an unforeseen sustained weakness in urea pricing or delays in the build-out could result in downward pressure on the rating. We do not consider that QAFCO's close links with the State of Qatar are likely to change in the foreseeable future. Standard & Poor's does not see major drivers of upward pressure on the rating.