The use of the capital markets

to fund the Ras Gas Project

Group No-4
28NMP Dhananjay Rastogi
28NMP Harsimran Kaur
28NMP62 Jahid Ahmed
28NMP69 OM PRAKASH
28NMP Vikas

Introduction-Ras Gas Project

Ras Laffan Ntaural Gas company is 70% owned by Qatar general petroleum corporation and 30%

owned by Mobil Corporation.

North field is one of the largest natural gas fields in the world with atleast 300 trillon cubis feet of

natural gas.
Ras Gas was constructed a 5.2 million metric ton per annum LNG facility in he Industrial arear of Ras

Laffan, Appromiately 50 Miles from Doha

Facility will consist of two indentical LNG process, offshore drilling platforms and onshore storage

facilities.
Expected cost of project was $3.4 billion and was expected to be funded with upto 75% debt and 25%

equity provided by QGPC and Mobil.

Ras Gas has an agreement to sell a total 4.8 MMTA of LNG to the Korea Gas Corporation for 25 years .
Ras gas was expected to generate 20%-25% of its cash flow from the sale of condensate, a liquifies

hydrocarbon similar to crude oil ,which will be sold on a spot basis principally to refiners

Ras Gas Project Structure

Steps towards financing Ras Gas project

Raising funds from
Bonds financing

Took sovereign rating as well as

rating of Ras Gas project from
Standard & Moodys
- Contracted-Arranged
Financing
- Standard Financing conditions
laid down for bidding.
Goldman sachs
estimated
project cost $5
billion initially

Involvement of Goldman Sachs

Goldman sachs was an advisor to this project.
The first objective was to develop to financial plan for the LNG project.
Detail study was done by Goldman Sachs on below points:

1) Large number of projects being developed in Qatar

2) The expected cash flows of the project
3) The history of bank and ECA leading to the state of Qatar.
The early estimates of the capital cost of Ras gas was $5 Mn based on the capital cost incurred

by other recent LNG projects .

Under the OECD rules that govern exports credits,the maximum repayment term provided by

export credit agencies for any project in Qatar is 8.5 years post completion with equal
semiannual payments.
Repayment of $3.5 Billion over an 8.5 Years repayment term was not even possible in an robust

cash flow scenario.

Therefore alternative source of funding was required and to extend the debt payment to 15

years.
At that time Qatar did not have a credit rating and no offering of capital amrkets debt had been

made in the middle east with longer than a 7 year maturity.

Due to these reason Goldman Sachs recommended to raise $1 Billion from Bonds.

Sovereign Ratings
It was critical for the Ras Gas financing strategy to have both sovereign credit of Qatar and

the Ras Gas project.

At that time Neither Standard & Poors or Moodys had published any rating for Arabian

Gulf.
Goldman Sachs worked closely with Ministry of finance and other government agencies

in Qatar to provide economic, financial and other information to the rating agancies for
their evaluation.
Agencies evaluated sovereign rating for Qatar BBB by Standard and Ba2 by Moodys

Concerns of Qatar & Mobil in Financing

1. Maximizing the amount, term and average life of the financing.
2. Minimizing conditions precedent to funding.
3. Ensuring that the terms of the financing permitted future expansions

of Ras Gas to at least 10 MMTA.

4. Minimizing cost
5. Achieving Financial Closing by December 1996

Contractor Arranged Financing

Making use of the companys leverage with the contractors will put pressure on the banks.
Contractors would be responsible for procuring equipment in a manner that supported their

committed financing.
Contractors will be useful in explaining and marketing the project to the banks and marketing the

project to the banks and ECA.

In order to have timely closure there should be penalty imposed on the contractors for failure to

achieve financial closure by end of 1996.

Demand for unprecedented coordination between Technical & Financing team
4 main Onshore EPC contractor: Bechtel group/Chiyoda Group/Foster Wheeler Group/JGC-MW

Group
Advised to hire financial advisors to help them to select Upto 7 commercial banks and no restrictions

on choosing the ECAs

Offshore platforms and piping works: No financing obligations for Contractors

Standard Financing Conditions (SFCs)

The SFCs were designed to be a road map for the bidding groups.
SFCs were designed in a way that would be fair to all the lenders, who would be a large

and diverse group of banks, ECAs and bondholders.

Throughout the Bid Process RAS GAS engaged 27 commercial banks and numerous ECAs

of Europe, Asia & US from early stage of Bidding process.

ECAs and Banks recognized the importance of including capital markets debts in Ras Gas

project.
SFCs only contemplated a two-train project, while the construction contracts were bid as

a single train with company options to build a second train.

This was done because Ras Gas was confident in its ability to sell additional volumes of

LNG, it was decided to focus lenders solely on a two-train projects.

Capital Market Offering Attractive

Onshore and Offshore contracts came in considerably below estimated cost

resulted in project cost reduced from $5 Billion to $3.5 Billion.

Debt requirement was reduced from $3.5 Billion to $2.5 Billion.
After detailed analysis of technical and Financial bidding onshore EPC contract

was given to JGC/MV/Kellog and signed commitment letter with a bank group
led by Industrial Bank of Japan and Credit Suisse.
Formula based lending structure was introduced whereby Ras Gas could draw

down increasing levels of debt based on the LNG volumes sold.

This approach provide adequate protection for the lenders and gave Ras Gas the

additionally flexibility to sell less that its full capacity and still achieve significant
leverage.

Funds to be Raised
$3.4 Billion
$0.9 B

Qatar
General
Petroleu
m

$2.5B

Expected Funds

Mobil
QM

$ 1.3
Bn

$1.2B
Bonds

Maturity: 10 & 17 Years

Average Life:
7 & 15 Years
Equity Investors
(30%)

Commercial Banks/ECA
USEXIM/UK &
ITALY/JAPAN

Maturity: 12.5 Years

Average Life: 9/8.5 Years
Senior Debt
(70%)

The Project Finance Bonds

$1.2 Billion

$400M

$800M

Coupon rate of 7.6 %

Coupon rate of 8.3 %

Matures in 2006

Matures in 2014

135 basis points above US

treasuries

187.5 basis points above US

treasuries

Non-recourse

Non-recourse

For institutional buyers only

For institutional buyers only

Capital Market Offering Attractive

It could be funded prior to Ras Gas meeting the conditions precedent to the bank and ECA

loans.
Longer maturities would improve early year distributions to the shareholders.
It could prove cheaper than the bank and ECA loans.
Delay in finalizing the additional sales.
Construction was supposed to proceed on schedule and was funded solely by shareholders

equity.
Improvement in the Credit rating of Ras Gas which was above the Sovereign rating of

Qatar .

Bond Market Strategy

Bond financing was possible before closing Bank and ECA financing.
Bank and ECA financing was scheduled close to mid-December.
Bond marketing started for the first two weeks in December.
Road shows as a marketing strategy started in U.S and Middle East.
Bond offering was into two Tranches Shorter tranches for European banks and long tranches

for U.S. investors.

Ras Gas had retained the flexibity to scale back the bank and ECA facilities.
Bases on strong demand of bonds issued by Ras Gas - $1.2 Billion offering were met.
It maximized funding for one-train projects, reducing overall cost and accelerating shareholders

returns through extended maturities.

Marketing Activity
Ras Gas represented an important component of Qatars national

strategy to develop the north field as its economic foundation for the
next century.
Ras Gas represented a key part of Mobils development of its LNG

business as a cornerstone of the companys growth strategy.

The increasing utilization of natural gas by residential, commercial

and industrial end markets in Korea is a national objective for which

billions of dollars are being spent on infrastructure.
Ras Gas has the rights to develop at least 10 MMTA from north field,

the sponsors will accordingly increase their equity investment.

CONCLUSION
Capital Markets offerings could be attractive because:
1. Longer maturities would improve early year
distributions to the shareholders.
2. It could be cheaper than the bank and ECA loans.
Requirement is
. Winning the market/stakeholders sentiments
. Early inclusion of stakeholders in the project before
bidding/freezing SFCs

Questions for Discussion

1. Critically examine the Ras Gas financing strategy.
Do you think that the capital markets have proved to
be a valuable component of the Ras Gas financing?
2. What are the significant issues in structuring the
Ras Gas financing? Discuss the framework developed
by the company to resolve these issues.