Moody's, an international credit rating agency, has affirmed the 'Aa3' backed senior secured debt rating of QatarEnergy LNG S(3).
In October 2023, the name of Ras Laffan Liquefied Natural Gas (3) was changed to QatarEnergy LNG S(3) and the name of Ras Laffan Liquefied Natural Gas (2) to QatarEnergy LNG S(2).
The rating action on QE LNG S3 reflects that it is a government-related issuer (GRI) and that the ratings benefit from Moody's assumption of “extraordinary support”, if required, from the government of Qatar to avoid a default on their debt obligations, which leads to a significant uplift from the standalone credit strength, or BCA, of the project.
The rating factored in the loss of production capacity and revenue as a result of the significant damage to the project's assets caused by the recent Iranian missile strikes on Ras Laffan.
The affected LNG (liquefied natural gas) trains 4 and 6 constitute around 40% of the total project's production capacity, and repairs are likely to require significant expenditure over several years.
HE the Minister of State for Energy Affairs, the Managing Director and Chief Executive Officer of QatarEnergy, HE Saad bin Sherida al-Kaabi had revealed that Iranian attacks disrupted 17% of Qatar's liquefied natural gas (LNG) export capacity, causing losses estimated at approximately $20bn in annual revenue and threatening supplies to Europe and Asia.
While the damaged facilities are likely to significantly reduce QE LNG S3's revenues going forward, Moody’s said there are certain partial mitigants to reduction in the project's credit quality.
The rated senior secured debt is amortising and is due to mature in September 2027, with currently outstanding amount at about 8% of the original $10bn debt quantum.
The QE LNG S3's debt service coverage ratio (DSCR) of 5.5x (times), prior to the Iranian attacks, had a considerable headroom, making the project "more resilient" to external stress factors.
"Our DSCR calculation of 5.5x differs from the common security agreement (CSA) DSCR calculation, which treats long-term shipping charter payments as operating costs. We consider the capital element of such shipping charter payments as equivalent to debt service, which results in a lower, albeit still robust adjusted DSCR," the rating agency said.
The project has a fully funded six-month debt service reserve, it said, adding there is potential to reduce certain cost items such as royalties, which are linked to production levels.
"We expect the company to continue to follow a prudent approach to their cost management and financial policy during the current crisis in the region, while also having the benefit of significant cash balances at the project," Moody's said.
The 'baa2' BCA for QE LNG S3 reflects its strong competitive position on the global LNG market, financial metrics with significant buffer for downside, and generally beneficial project finance structural features, although lacking certain security interests and subject to limitations on the likely effectiveness of certain creditor protections.
It also considered event risk considerations, including asset concentration risk and ongoing geopolitical risks, and the exposure to oil and gas commodity price risk.