New York, March 08, 2018 — Moody’s Investors Service (Moody’s) assigned a Baa3 Issuer Rating to Peru LNG S.R.L. (PLNG) and its proposed USD940 million in senior unsecured notes. Proceeds from the notes will be used to refinance existing corporate bonds together with bank debt. The outlook on the ratings is stable.
This is the first time that Moody’s assigns ratings to PLNG.
RATINGS RATIONALE
The Baa3 ratings on PLNG and its USD940 million in proposed senior unsecured notes are supported by its solid credit metrics and financial policies, no volume risk, low supply risk, high facility utilization factor, limited competition risk, minimum foreign exchange risk, strong shareholders support and the high relevance of the company to the Peruvian’s energy industry and trade balance. On the other hand, the ratings also consider the company’s small and single operational asset base as well as its exposure to Liquefied Natural Gas (LNG) price risk, which bring up operating and financial risk.
The proposed notes will have 6 years of grace period and mature in 2030, after the LNG Sale and Purchase Agreement with Shell International Trading Middle East Limited (SITME) expires, in 2028. The mismatch between the maturity of the notes and the expiration of the delivery contract to the off-taker represents a risk that is however mitigated by the payment amortizing feature of the proposed notes. Moody’s estimates that, in 2028, PLNG would owe about USD238 million related to the 2030 notes, which the company would cover with accumulated cash flow from operations.
PLNG has adequate liquidity pro forma for the proposed notes and debt repayment. Moody’s estimates that, after the company issues the notes and repay existing debt, cash on hands will be about USD50 million which favorably compares to USD30 million of minimum cash. Moody’s also estimates that PLNG will generate cash from operations close to USD108 million over the next 18 months. The company’s financial obligations in the period will be about USD42 million (interest expenses) and it will not pay dividends; in turn, capital expenditures will be limited to USD23 million in 2018, mostly for scheduled maintenance purposes.
The stable rating outlook reflects Moody’s expectation that PLNG will sustain its low business risk profile, maintain solid financial policies, and be able to reduce its financial leverage towards management’s target of 3.5-4.0x debt/EBITDA by year end 2019.
PLNG’s Baa3 ratings could be upgraded if it manages to decrease leverage efficiently, as per EBITDA to gross debt, below 3.5 times on a sustainable basis as well as if maintains an interest coverage above 6.5 times, as per EBITDA to interest expense.
PLNG’s Baa3 ratings could be downgraded if its interest coverage, as per EBITDA to interest expense, falls to below 3 times with limited prospects of a quick turnaround. In addition, a deterioration of the company’s liquidity profile and an increase in leverage above to 6.5 times could lead to a rating downgrade.
Founded in 2003 to build, own and operate the first natural gas liquefaction plant in South America, PLNG delivered the first LNG cargo to its sole off-taker, SITME on June 22, 2010. PLNG operates a 4.45 mmtpa liquefaction plant located in Pampa Melchorita (Cañete), a marine terminal, and a 408 km pipeline that transports natural gas from the prolific Camisea fields (Cusco, Peru). The natural gas for the production of PLNG is supplied from Camisea gas fields pursuant to two separate Gas Supply Agreements with Block 56 and Block 88 for a total of 4.2TCF. Peru LNG is 50% owned by Hunt Oil Company (B1 stable), 20% by Royal Dutch Shell Plc (Aa2 stable), 20% by SK Innovation Co. Ltd (Baa1 stable) and 10% by Marubeni Corporation (Baa2 negative). Moody’s estimates that, in 2018, the company’s revenues and assets will reach close to USD500 million and USD2.4 billion, respectively, while adjusted leverage ratio will hover at about 4.6 times debt/EBITDA.
Atlantic Investors Service 