Commenting on the RasGas downgrade, Moody’s says: ‘The rating . reflects the more limited coverage of the company’s new insurance policies, in particular relating to terrorism and sabotage. This has increased the event risk associated with the project.’
The new insurance policies taken out by RasGas were signed on 15 December, and the company now has $100 million worth of terrorism cover for property damage and business interruption for its onshore operations. The book value of the project company’s assets is about $1,600 million, but the estimated maximum loss (EML) is much smaller. Moody’s says the rating is supported by the company’s high liquidity – it maintains a six-month debt service reserve – but that this, combined with the $100 million terrorism policy, might not cover the EML.
Moody’s says its considerably higher rating for Oman LNG is supported by comprehensive insurance policies, which were rolled over on 15 January. Unlike RasGas, Oman LNG is thought to have sufficient available liquidity and terrorism cover to exceed its EML, including the impact of business interruption.
Moody’s makes no distinction in the threat posed to the two LNG projects apart from to state that RasGas has a ‘a high profile in the host country’.
The lowering of the RasGas debt rating will reinforce one of the growing concerns of regional project financiers (MEED 20:12:02, Cover Story). Prior to 11 September 2001, full terrorism cover was usually included free in installation insurance policies. After the attacks, insurance companies were quick to remove these clauses. Not only does terrorism cover now have to be bought separately, it can only be purchased at a costly price and there is only limited availability – getting policies written for more than $100 million-150 million can stretch the market.
With a string of major project finance deals scheduled to come to market over the next few months – among them RasGas II– bankers will be checking the insurance small-print closely to see if pricing patterns should be adjusted.