Fitch affirms Nakilat Inc.'s Series A bond ratings

The affirmations reflect the stable performance of the underlying project in line with vessel delivery expectations and the charterers' construction schedule.

As of June 30, all 16 liquefied natural gas (LNG) vessels of the initial fleet financed under the initial debt program (including the series A bonds) had been delivered on schedule and within budget.

The additional fleet of nine vessels, financed under the additional debt program, is currently under construction and is expected to be delivered by October 2010.

While Fitch is aware of delays in completion of the charterers' projects, the agency does not anticipate that the charterers would fail to meet their contractual payment obligations as a result of these delays, due to the relative size of the charter expense as a percentage of the charterers' total revenues and their ability to sub-charter the vessels under a bareboat charter arrangement.

The ratings are supported by the fact that debt repayment is largely insensitive to potential operating cost increases, as operating expenses are passed through to charterers.

Furthermore, the long term operating risks of the vessels are mitigated by the performance guarantees provided by Qatar Gas Transport Company Ltd (QGTC), a majority state-owned company, in support of the vessel owners for the duration of the time charter.

The vessel owners, backed by QGTC guarantees, provide certain performance warranties with respect to a vessel's speed performance, fuel consumption, loading and discharge rates, and boil-off rate. Fitch notes that the QGTC performance guarantees mitigate the possibility of reduced charter payments due to under performance of the vessel owners.

The agency notes the strategic importance of the underlying project, as part of a vertically integrated value chain in delivering Qatar's LNG to end-use markets, strengthens the likelihood of charter payments. Although QGTC, a majority state owned entity, has provided guarantees against vessel under performance, sovereign support for Nakilat's debt obligations was not a direct consideration in the ratings analysis.

The bonds are part of a debt programme that will finance 90% of the $7,459m estimated delivered costs of 25 large LNG tankers that will be chartered to upstream LNG projects in Qatar.

The bond proceeds have been on-lent to separate special purpose entities of individual vessel owners, wholly owned by Nakilat Inc. Each vessel owner in turn guarantees Nakilat's obligations respectively on a senior secured basis and on a subordinated secured basis.

Nakilat Inc. is a Marshall Islands company, wholly-owned by QGTC for the purpose of financing a fleet of LNG vessels.