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Rating Action:

Moody's changes ratings outlook of RasGas II-3 to stable; affirms ratings

18 Jul 2018

London, 18 July 2018 -- Moody's Investors Service, ("Moody's") has today affirmed the A1 guaranteed senior secured debt ratings of Ras Laffan Liquefied Natural Gas Co.Ltd (II) (RasGas II) and Ras Laffan Liquefied Natural Gas Co.Ltd (3) (RasGas 3), together RasGas II-3. The outlook has been changed to stable from negative.

RATINGS RATIONALE

Today's rating actions on RasGas II and RasGas 3 follow Moody's 13 July affirmation of Government of Qatar's Aa3 long-term issuer and foreign-currency senior unsecured debt ratings, and change in outlook to stable, from negative. The key driver of the change in Government of Qatar's rating outlook to stable is Moody's assessment that Qatar can withstand the economic, financial and diplomatic boycott by the three neighbouring Gulf Cooperation Council (GCC) countries and Egypt (B3 stable) in its current form, or with possible further restrictions, for an extended period of time without a material deterioration of the sovereign's credit profile. This assessment is in part based on evidence of broad resilience of Qatar's credit metrics to the economic and financial blockade over the past 13 months.

The stable outlook on the government bond ratings of Qatar reflects Moody's view that Qatar's credit metrics will likely remain consistent with a Aa3 rating as the boycott continues. The stable outlook includes the possibility of some additional restrictions, and is also supported by Moody's view that, while a quick resolution of the GCC diplomatic stand-off is very unlikely in the next 12-18 months, a significant escalation that would materially erode Qatar's credit metrics is also a very low-probability event. For additional information, please refer to the related Qatar sovereign rating press release: https://www.moodys.com/research/--PR_386243

The rating actions on RasGas II and RasGas 3 reflect that each 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 baseline credit assessment (BCA), of the projects.

The BCA for RasGas II-3 is affirmed , and lies within a range of baa1-baa3. Since its initiation over one year ago, the diplomatic dispute has not materially impacted RasGas II-3's ability to deliver liquefied natural gas (LNG) to their customers. The rating agency considers the risk of a disruption of Qatari LNG vessels' ability to transit the Strait of Hormuz to be low.

Qatar can currently export LNG through the Strait without entering UAE or Saudi Arabia territorial waters. Even if Oman joined the Saudi led action, it is expected that Qatar's LNG vessels would be able to transit the Strait via Iranian waters.

More generally, while Moody's understand that RasGas II-3's operations have not been materially impacted by the dispute, operating and transportation costs could be adversely impacted by a protraction or escalation of the dispute.

The BCA for RasGas II-3 also reflects (1) the project's compelling commercial and industrial rationale, and the strong competitive position that it enjoys as a world class, low-cost producer of LNG and valuable by-products, (2) its generally beneficial project finance structural features, subject to the absence of certain security interests and subject to limitations on the likely effectiveness of certain creditor projections, (3) event risk considerations, including asset-concentration risk and geopolitical risk and (4) the project's exposure to commodity price risk, although such risks are substantially mitigated by its very strong financial metrics.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Moody's could upgrade the ratings if the sovereign rating of the Government of Qatar was upgraded.

Moody's could downgrade the ratings if the sovereign rating of the Government of Qatar was downgraded. Moody's could also downgrade the ratings if its assumption of high support weakens.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects the stable outlook on Qatar's sovereign rating.

The methodologies used in these ratings were Generic Project Finance published in April 2018, and Government-Related Issuers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

COMPANY PROFILES

RasGas II and RasGas 3 are Qatari LNG liquefaction companies. The RasGas II-3 project engages in the upstream production of natural gas, gas treatment and liquefaction, and the export of natural gas in liquid form. RasGas II-3 has successfully developed five LNG liquefaction trains, which produced 29.7 million tonnes of LNG in 2017, representing 13% of worldwide production. RasGas II-3 also produces a number of other valuable by-products in conjunction with LNG, including condensates and liquefied petroleum gas.

Moody's considers RasGas II-3 as a single entity from a credit perspective since all senior secured debt raised by RasGas 3 is unconditionally and irrevocably guaranteed by RasGas II, and vice versa. All such senior debt raised by the companies ranks pari passu, and is secured against a project finance security package. Secured creditors also benefit from project finance structural features.

The ultimate shareholders of each of RasGas II and RasGas 3 are Qatar Petroleum (70%, Aa3 stable) and Exxon Mobil Corporation (30%, Aaa stable).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Christopher Bredholt
VP-Sr Credit Officer
Infrastructure Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Kevin Maddick
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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