Fitch assigns RasGas 3 2.230bn bonds expected 'A+' rating

The proposed new issue includes Series E, F and G bonds (500m, 1,115m and 615m with bullet maturities in 2012, 2014 and 2019 respectively).

At the same time, Fitch has affirmed Ras Laffan Liquefied Natural Gas Company Limited (II)'s (RasGas (II)) Series A bond and RasGas (3)'s Series B, C and D bonds at 'A+' with a Stable Outlook. The obligations of each issuer are guaranteed by the other entity.

The final ratings are contingent upon receipt of final documents conforming to information already received.

The ratings reflect the consistent operating reliability of the project in line with Fitch's original expectations, a committed sponsor group, access to abundant gas resources and a relatively low capital and operating cost structure which contribute to strong debt service coverage ratios and a low commodity price breakeven.

The Stable Outlook is supported by a geographically diverse portfolio of long-term offtake agreements, full chain integration with long-term shipping capacity and investments in regasification terminals by sponsor affiliates. Additionally, Qatar is strategically located for deliveries to all major gas consuming regions, meeting seasonal swing demands.

The key constraints to these ratings are the single site nature of the facilities and the technical complexity of operating the largest liquefaction trains currently in existence. Fitch notes that the new bullet maturities introduce near term stress in the repayment profile. However the agency considers the overall financial risk acceptable for the ratings category and understands that the project expects to make all debt repayment from internally generated cash flows without refinancing exposure.

Although Fitch did not receives an updated reserve report the agency notes in previous discussions in 2006 that there are sufficient reserves to meet contract requirements, and does not expect the reservoir's characteristics to change radically within such a short period of time. When rating projects of this nature, Fitch typically expects to receive a working electronic financial model.

Instead, the financial projections were provided in hard copy format. The agency however expects to receive an auditor's report validating the financial model as part of the closing documentation.

The new 2.23bn bonds, together with the pari-passu lending of 956m from an affiliate of Exxon Mobil Corporation (EM, rated 'AAA'/'F1+'/Stable), will be used to fund remaining capex and other costs associated with the construction of Trains 6 and 7, including the refinancing of some of the sponsors' contributions. The new liquefaction plants are expected to raise the combined production capacity of RasGas II/3 to approximately 30m tons per annum (mtpa) by 2010 from 14.1 mtpa currently. The new bond issue will bring the total debt of the two projects to 10.0bn and now fully funded.

Under the terms of the financing covenants, the aggregate debt of the two companies is capped at 7.25bn until Train 6 passes completion tests, or unless the sponsors elect to offer completion support. Therefore, EM Surety Corporation, an affiliate of EM and Qatar Petroleum (QP), will provide completion support on a several not joint basis for the purpose of raising or guaranteeing the additional debt obligations. The completion support will be for the benefit of all senior debt holders of RasGas II and RasGas 3.

Train 6 is expected to pass completion tests in Q110 after achieving liquefied natural gas (LNG) production volumes over a 60-day period equal to 90% of the average annual design capacity. Although all senior lenders benefit from the completion support, the completion tests are weaker than other comparable projects Fitch has previously reviewed.

RasGas (II) and RasGas (3) are owned, either directly or indirectly, approximately 70:30 by Qatar Petroleum and ExxonMobil affiliate (EM, rated 'AAA'/'F1+'/Stable). RasGas extracts gas under a long-term development and fiscal agreement, produces liquefied natural gas, condensate and by-products through offshore and onshore facilities. RasGas II currently operates three 4.7mtpa LNG trains at the Ras Laffan Industrial City in Qatar.

RasGas 3, the expansion of RasGas II, involves the construction of two larger LNG trains of 7.8 mtpa each. Originally scheduled for completion in 2008 and 2009 respectively, initial LNG production operations from Train 6 and 7 are planned for third quarter 2009 and fourth quarter 2009. The total cost for the project is expected to be in the region of 14.6 bn.