AS the ink dried on the $2,550 million financing arrangement for Qatar’s Ras Laffan Liquefied Natural Gas (Rasgas) project on 19 December, the clients and their financiers had more to celebrate than the fact that this was the largest multi-source project financing in Middle East history. From practically every perspective, the loan and bonds package was one of a kind, a deal that has broken the mould for ways of using private money in a major energy scheme.
Rasgas is the second liquefied natural gas (LNG) scheme in Qatar and finalisation of the financing came a little more than two months before Qatar Liquefied Gas Company (Qatargas), the first LNG unit, was officially opened on 24 February. What makes Rasgas different is the speed with which the company was formed and the bold approach to raising the huge amounts needed to build it.
Rasgas, unlike Qatargas, is a single project in which the upstream and downstream elements are being implemented by a single company. It will produce 5.2 million tonnes a year of LNG and associated condensate in two trains from Qatar’s North Field, the world’s largest non-associated gas reservoir. Investment in Rasgas is expected to be about $3,400 millon and the first product is expected to flow by mid-1999.
Rasgas has benefited from the status of its shareholders. Qatar General Petroleum Company (QGPC) initially had 70 per cent and Mobil QM, a subsidiary of Mobil Corporation, had 30 per cent. The US oil company has been involved in Gulf oil for more than 50 years and is a shareholder in Qatargas. On
9 December, formal heads of agreement were signed giving Nissho Iwai 4 per cent and Itochu Corporation 3 per cent. This reduced QGPC’s stake to 66.5 per cent and Mobil’s to 26.5 per cent.
The key to the success of the financing is a 25-year sales and purchase agreement with Korea Gas Corporation for 2.4 million tonnes a year from the start-up of Rasgas. The company is negotiating further deals with buyers in the Far East and Asia. Long-term plans call for the project to be expanded in phases to up to six trains, a development that would make Rasgas one of the biggest LNG schemes in the world.
While the shareholding structure and the first sales agreement were being defined, action was taken to find the money needed to finance the scheme. Industrial Bank of Japan with Credit Suisse won the mandate in early 1996 and they quickly decided the best way forward was to raise the full amount required in a single stroke. This was achieved in the December 1996 deal. Goldman Sachs International, appointed Rasgas financial adviser in 1994, with CS First Boston as co-lead manager, had the task of placing the Rasgas bonds.
The initial plan was to raise $400 million, but the amount was increased to $1,200 million following a strong response from investors. The first issue of debentures in support of a major Gulf energy scheme was split into two tranches. Some $800 million-worth have a maturity of 17 years and an average life of 15 years. They are priced to yield 187.5 basis points more than comparable US treasury bonds. The remaining $400 million has a 10-year maturity and 7.3 year average life. These are priced at 135 basis points over US treasury bonds. Standard & Poors (S&P) rated them BBB+ and Moody’s Investors Service rated the longer-term paper at A3.
Credit Suisse and IBJ lead managed the export credits. Eximbank of the US supported $465 million, the UK’s Export Credits Guarantee Department (ECGD) covered $250 million and the rest came from Sace of Italy. The remaining $450 million was raised through an uncovered commercial bank loan. The $1,350 million in loans was underwritten by a group of 25 international banks. The uncovered loan has an average life of 9.2 years, while the export credits have a life of 8.7 years. The maturity of all the loans is 12.75 years and the first repayment is due in September 2001. The export credits were raised as contractor-arranged financing. JGC of Japan and The MW Kellogg Company, the engineering, procurement and construction contractors, appointed IBJ and Credit Suisse as their financial advisers.
The arrangers believe that project finance in the Gulf will never be the same again. The Rasgas financing has shown that the major clients in the region are able to address their growing need for private capital in innovative ways. The deal also shows that international banks are prepared to respond imaginatively to the challenge of raising substantial sums for a region that will remain for the foreseeable future the world’s most important energy supplier.