Qatar’s Ras Laffan LNG Company (Rasgas) broke new ground in Middle Eastern project finance with a $1,200 private sale of bonds, announced on 12 December. The corporate bond issue, the biggest ever to come out of the region, is large even by the standards of project finance worldwide.
‘It’s the first project to be securitised in the Gulf, and the reception has been excellent. It was oversubscribed,’ says a source close to the deal. Rasgas originally planned to sell $400 million worth of bonds, but buying interest was so strong that the issue’s size was tripled. The bonds are issued under New York law and will be used to cover part of the $2,400 million cost of setting up the gas project. The balance will come from equity and loans (see Qatar).
The deal was lead-managed by Goldman Sachs, which was also bookrunner, and CS First Boston. It has two parts, of which the first is $800 million worth of bonds with a coupon of 8.294 per cent, maturing in 2014, but with an average life of 15 years. They were sold at par to yield 187.5 basis points over comparable US treasury bonds. The second part is $400 million worth of bonds, maturing in 2006 with an average life of 7.3 years. These have a coupon of 7.628 per cent and were priced at par to yield 135 basis points over US treasuries.
Bankers say the pricing is reasonable, but probably slightly expensive for the borrower. This reflects the novelty of the issue by a Gulf corporate. The pre-completion risk on the bonds is covered by guarantees from Rasgas’ shareholders, the state-owned Qatar General Petroleum Corporation (QGPC – 66.5 per cent); the US’ Mobil Corporation (26.5 per cent); Itochu Corporation (4 per cent) and Nissho Iwai (3 per cent), both of Japan. The shareholders undertake to pay the money back if the Ras Laffan gas project does not pass a completion test to take place by 2001 at the latest. Thereafter, the bonds are secured by the assets of the project.
Ratings agency Standard & Poor’s has given the bonds a rating of BBB+, while Moody’s Investors Service rates the longer-term bonds A3. Both of these ratings, which were made before the issue’s size was tripled, are higher than the sovereign ratings assigned to Qatar itself. They reflect the importance of the deal to both Rasgas and its long-term customer, Korea Gas Corporation, the involvement of Mobil, the huge size and relative accessibility of Qatar’s gas reserves and the fact that Rasgas sales revenues are to be paid into an offshore account. The main factor constraining the ratings is the political risk associated with the Gulf.