The ratings reflect two-notch uplift from the senior and junior bonds’ Standalone Credit Profiles (SCP) at ‘a’ and ‘a-’, respectively, capturing the strong incentives by the government to provide or facilitate extraordinary support to the project directly or via time charters. The SCPs reflect the project’s stable cash flow, supported by consistent operating and financial performance.
Nakilat is 100% owned by Qatar Gas Transport Company (QGTC), a joint-stock entity partly owned by state-owned QatarEnergy LNG and government funds. The special shares owned by QatarEnergy enable the government to have extensive decision-making power in QGTC.
Highlighting that LNG exports form a large contribution to Qatar’s income (40% of GDP or gross domestic product) and Qatar is progressing toward full LNG value-chain integration; Fitch believes that replacing Nakilat would be possible, but not without a temporary disruption to Qatar’s LNG exports.
Nakilat’s junior debt’s ‘a-’ SCP reflects the availability-based nature of revenue with limited exposure to cost risk and an average debt service coverage ratio (DSCR) of 1.27x for 2025-33 under Fitch Rating Case (FRC).
The senior debt’s higher SCP reflects its senior ranking and a 24-month standstill period in a junior debt default. The one-notch SCP differential also reflects the junior bondholders’ enforcement rights over the security after the standstill period elapses, resulting in similar probabilities of default on both the senior and junior debt.
However, the senior debt’s higher resilience to temporary stress may result in a junior debt default without triggering a default of the senior debt, if the default is remedied before the end of the standstill period.
Revenues have historically increased after a rise in operating costs. An operations and maintenance reserve of $300,000 per vessel is in place, as well as a dry-docking reserve, which is funded by daily distributions of $1,900 per vessel. Voyage costs, fuel costs and port charges are borne by charterers.
Ship management has so far been outsourced to Shell International Trading and Shipping Company which has historically seen strong operating performance. However, operations are progressively being transferred to Nakilat from Shell. Fitch expects the quality of operations to remain “high”.
Nakilat derives its revenue from availability-based charter payments for its 25 vessels. There is no pass-through of availability deductions but historically these have been minimal and are expected to remain at similar levels, according to Fitch.
Finding that the time charters also include a generous time allowance for the assets to be unavailable during dry-docking, without incurring any deductions; it said, “We view the charterers QatarEnergy as a strong counterparty. Nakilat is strategic to QatarEnergy and, consequently, in the Qatari LNG value chain, leading to little incentive for the charterers to terminate the contracts.
Each LNG vessel has a 40-year design life, which is well beyond the tenor of Nakilat’s debt. It has a long asset life and Nakilat’s fleet is fairly new and modern, reducing the need for major maintenance and repairs in the early life of the assets. Dry-docking exercises that take place every five years address the ongoing maintenance needs of the fleet.
