International credit rating agency Moody's has upgraded the backed senior secured debt rating of QatarEnergy LNG S(3) (QE LNG 3) to 'Aa3' from 'A1' and Nakilat Inc to 'Aa3' from 'A1' as well as upgraded the senior subordinated debt rating of Nakilat Inc to 'A1' from 'A2'.
The baseline credit assessment (BCA) is affirmed at 'baa1' for QE LNG 3 and affirmed at 'a3' for Nakilat. The outlook on these issuers has been changed to “stable”, from “positive”.
The rating actions of the two Qatari project finance issuers follow Moody's upgrade of the government bond and issuer ratings of the government to 'Aa2' from 'Aa3', and change in outlook to "stable", from "positive".
The rating actions on QE LNG 3 and Nakilat reflect that each is a government related issuer (GRI) and that the ratings benefit from Moody's assumption of extraordinary support, if required, from the government to avoid a default on their debt obligations, which leads to a significant uplift from the standalone credit strength, or BCA, of the projects.
The 'baa1' BCA for QE LNG 3 is affirmed and reflects its strong competitive position, very strong financial metrics, even in a low oil and gas price scenario, generally beneficial project finance structural features, although lacking certain security interests and subject to limitations on the likely effectiveness of certain creditor protections, event risk considerations, including asset concentration risk and geopolitical risk and exposure to oil and gas commodity price risk.
The credit quality of the bonds, as captured in "Aa3' rating reflects Moody’s assessment of a high likelihood of extraordinary government support should it become necessary.
The 'a3' BCA for Nakilat is affirmed and reflects the critical importance of its vessels to their liquefaction company charterers, high quality net cash flows, underpinned by charter payments that are highly resilient and well-matched to operating costs and debt service costs, financial metrics capable of supporting long tenure project finance debt, generally beneficial project finance structural features, certain event risk considerations including exposure to force majeure risks potentially affecting the vessels, and exposure to refinancing risk arising from the bullet maturities of certain facilities.
QE LNG 3 operates in conjunction with its affiliate QatarEnergy LNG S (2) (QE LNG 2), (together, QE LNG 2-3). QE LNG 2-3 engages in the upstream production of natural gas, gas treatment and liquefaction and the export of natural gas in liquid form.
QE LNG 2-3 has successfully developed five liquefied natural gas (LNG) liquefaction trains, with total nameplate capacity of 29.7mn tonnes of LNG per annum, representing approximately 7.4% of globally traded LNG in 2022. QE LNG 2-3 produces a number of other valuable hydrocarbon byproducts, including condensates and liquefied petroleum gas (LPG).
"We consider QE LNG 2-3 as a single entity from a credit perspective since all senior secured debt raised by QE LNG 2 is unconditionally and irrevocably guaranteed by QE LNG 3, and vice versa. All such senior debt raised by the companies ranks pari passu, and is secured against a project finance security package. Secured creditors also benefit from project finance structural features," Moody's said.
Nakilat Inc. was formed in April 2006 to be an intermediate special purpose holding company for a portfolio of wholly-owned special purpose companies, with each such company procuring the construction of an LNG carrier, and becoming that vessel's owner following construction completion. The 25 vessels are contracted under long-term time charter party agreements with LNG liquefaction companies based at Ras Laffan Industrial City in Qatar.
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