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Welcome to Our Presentationon Case-03
RAS LAFFAN: A GLOBAL ENERGY STRATEGY
SL# Name ID (MBA)
ID (BBA)
1 A.T.M. Rajibul Akbar 15-533 15-097
2 Md. Sabuj Miah 15-541 15-107
3 Md.Rakib 15-663 15-047
Group - 35
PEST Analysis
Industry Analysis• Porter’s 5 Forces Analysis
Company Analysis• Company Overview
• SWOT Analysis
• Ratio Analysis
• Risk Analysis
• Bond Valuation
Case specific Problem Analysis• Problem Statement
• Problem Solution
• Recomendation
ROAD AHEAD…
Ras Laffan’s Ownership Structure
Itochu
Ras Laffan LNG
“RasGas”
Nissho Iwai
Mobil QMQatar General
Petroleum
Govt. of Qatar Mobil Corp.
26.5 %66.5 %
4 % 3 %
100 % 100 %
Total Expected
Funds: 3.74B
Two Bonds: 1.2B (32.1%)
Loan from ECAs and Commercial
Banks: 1.15B (30.6%)
Equity: 1B (26.9%)
Net OCF: 0.389B (10.4%)
Ras Laffan’s Proforma Capitalization
Funds to be Raised Externally
$3.35 Billion
$704M $383M$1.2B $764M
Expected Funds
$302M
Mobil QMQatar General
Petroleum
Equity Investors(26.9%)
Bonds Commercial Banks
Export Credit
Agencies
Senior Debt(62.7%)
The Project Finance Bonds
$1.2 Billion
$400M $800M
Coupon rate of 7.6 %
Matures in 2006
Non-recourse
For institutional buyers only (Private Placements)
Coupon rate of 8.3 %
Matures in 2014
Non-recourse
For institutional buyers only only (Private Placements)
The Customer
Korea Gas
Kogas is owned by the Republic of Korea (50.1%), Kepco (34.5%) and Korean
Municipalities (15.4%).
Accounts for 78% of LNG sales
Signed 25 year LNG Supply & Purchase Agreement (SPA) to buy 4.8 MMTA each year.
Spent $7 billion on LNG infrastructure investments
Additional $1.2 billion per year until 2000.
6 loading berths and 53 storage tanks by 2010.
The Customer (Cont.)
Korea’s LNG demand: Growing 20% per year
Kogas forecasts: 7% annual growth demand for LNG
Korean customers pay Kogas in korean won.
Korean regulators approved all request for price increases.
Kogas pays Ras Laffan for LNG in US dollars.
The Contract
Supply & Purchase Agreement includes:
LNG prices linked to JCC index
4.8 million metric tons of LNG annually
A take-or-pay clause
Estimated start price: $3.88 per MMBTU
Kogas responsible for transportation of LNG
Other Agreements
Qatari Govt.: 12 year tax holiday.
Mobil: $200 million fund for debt servicing shortfalls.
The Intercreditor Protection Agreements.
Carrying different insurances by Ras Laffan.
The Security Trust Agreement in New York:
Qatari law: Lenders cannot have interest in LNG facilities.
Protect the bondholders by using sales revenues to pay Ras Laffan
operating and maintenance first and then to pay lenders.
ECONOMIC ANALYSIS
Rapidly growing economy
Increasing demand of gas as
an alternative source of energy.
PORTER’S FIVE FORCES ANALYSIS
Porter’s Five Forces Model
Rivalry among existing firms
(Moderate)
Threat of new entrants
(Low)
Bargaining power of suppliers
(Low)Bargaining power of
customers
(High)
Threat of substitutes
(Low)
PEST Analysis:
Political Aspect :• The Qatar is a constitutional monarchywith the Emir of Qatar as head of stateand government.• It has larger and sometimes aggressiveneighbors.• The Qatar was dependent on US. andother Western countries for diplomaticsupport.
Economic Aspect:• The standard of living was high withaverage per capita income of $13,000.• Qatar had fiscal budget deficits (7% ofGDP) between 1992 and 1996).• Exports was increasing more than theimports.
Socio Cultural aspect :• Both civil and religious (Sharia) courtsexist.• Interest is prohibited.• Concepts of pledge, lien, and mortgagewere unfamiliar.
Technological Aspect:• The Qatar is not technologicallysophisticated country.•Ras Laffan was constructing the facilitieson contract basis.• Pioneering technical advances can affectthe Ras Laffan project revenues.
SWOT Analysis
Strengths•Ras Laffan 2nd Least expensive LNG in world (1997).• Two good sponsors: QGPC and Mobil Corp.•Supply and Purchase Agreement (SPA).
Weakness• Single customer contributing about 78% of total revenue.• High facilities development cost and financial leverage.• Risk of moderate bankruptcy.
Opportunities•Production of environmentally acceptable, financially economical gas. • Opportunity to expand operation.
Threats• Concerned with possible take-over threats.•Exchange rate fluctuation.
RISK ANALYSIS
Business Risk
Operating profit Volatility
Co-efficient of Variation of
Operating Profit
0.11(Reduced Price)
0.13 (Base Case)
Sales Volatility
Co-efficient of Variation of
Sales
0.10 (Reduced Price)
0.12 (Base Case)
Degree of Operating Leverage
Base Case Reduced Price Case
1.30
0.98
0.53
1.32
1.21
0.57
1.36
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2001 2002 2003 2004 2005 2006 2007 2008 2009
Degree of Operating Leverage (DOL)
DOL
1.38
0.79
-0.51
1.55
1.04
-0.58
1.64
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2001 2002 2003 2004 2005 2006 2007 2008 2009
Degree of Operating Leverage (DOL)
DOL
Degree of Financial Leverage
Base Case Reduced Price Case
1.35 1.331.28
1.231.19
1.15 1.13 1.10
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Degree of Financial Leverage (DFL)
DFL
1.561.50
1.421.36
1.291.24 1.20 1.16
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Degree of Financial Leverage (DFL)
DFL
Times-Interest-Earned
Base Case Reduced Price Case
2.67
3.744.22
4.74
5.53
6.56
7.71
9.21
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Times-Interest-Earned (TIE)
TIE
2.00
2.813.12
3.43
3.97
4.61
5.27
6.21
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
2000 2002 2004 2006 2008 2010
Times-Interest-Earned (TIE)
TIE
Debt Coverage Ratio
Base Case Reduced Price Case
1.551.73
1.841.93
2.072.22
2.95
3.18
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Debt Coverage Ratio
Debt Coverage Ratio
1.161.30
1.36 1.401.49
1.56
2.022.14
0.00
0.50
1.00
1.50
2.00
2.50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Debt Coverage Ratio
Debt Coverage Ratio
Problem Statement
ShouldBroadway invest in the
Ras Laffan project finance, non recourse, bonds
Country Risk
Risk Factor Score WeightWeighted
Score Risk
Political Risk 70.0% 0.5 0.35 Moderate
ER(Economic Risk)* 75.0% 0.25 0.19 Low
FR(Financial Risk)* 80.0% 0.25 0.20 Low
TOTAL 0.74 Low
This composite risk rating shows that It is low risky country.
Currency Exchange Rate Risk
If Korean Won depreciates against US Dollar then Kogasdemand for LNG may decrease. But the SPA is for 25 years so it may not affect the demand.
Depreciation in Korean Won may results in possible breach in contract by Kogas and no payment to Ras Laffan will result in default to Bondholders.
Mitigating the risk:
Start selling LNG into the world market. Kogas may hedge the US dollar-Korean won.
Higher Crude Oil Prices:
Cause higher LNG prices
Could cause other energy sources to be more affordable
Could cause Kogas to default.
Mitigating Risk Factors:
“Take or Pay” clause for 4.8MMTA
Korea government is committed to agreement
Will shift consumption if necessary
Kogas has spent over $7 billion in LNG infrastructure.
Ras Laffan 2nd Least expensive LNG in world (1997)
Commodity Prices
Broadway Investment Decision
If they don’t invest
No coupon interest can be availed and lose potential coupon interest
They can invest in other potential project and opportunity cost will arise.
Broadway Investment Decision
If they invest in Bond 2006
Capital investment will be upto $400 million and opportunity cost will arise.
7.6% coupon interest can be availed On the failure of debt repayment bondholders will not be
compensated by the parent company (Non-recourse) The bond will mature in 2006 and shows a shorter
maturity. Considering above fact the bond is to be assumed as
moderately risky
Broadway Investment Decision
If they invest in Bond 2014
Capital investment will be upto $800 million and opportunity cost will arise.
8.3% coupon interest can be availed On the failure of debt repayment bondholders will not be
compensated by the parent company (Non-recourse) The bond will mature in 2014 and shows a longer maturity. Considering above fact it is assumed that the bond has
high risk and broadway will charge higher return if they invest in the bond.
Face Value=$800 millionCoupon Interest Rate =
8.3%Mature at 2014
As the bond has high risk the following facts have been assumed to value the bond
Valuation
Base case Worst CaseRF 6% 6%Inf(1980-1996) 2% 3%Risk Premium($800) 1.15% 2.30%Market return($800mil) 9.15% 11.30%Price 779.3118 656.2569
Broadway Investment Decision
If they invest in both Bond
Capital investment will be upto $1200 million and opportunity cost will arise.
8.3% and 7.6% coupon interest can be availed On the failure of debt repayment bondholders will not be
compensated by the parent company (Non-recourse) There is no diversification scope as two bonds have been
issued by the same company. Considering above fact it is assumed that the bond has
higher risk and broadway will charge higher return if they invest in those bonds.
RecommendationCoupon Interest
Risk Exposure Cost
Don’t Invest None None None
Invest in 2006 Bond Moderate Moderate Minimal
Invest in 2014 Bond High High Moderate
Invest in Both Bonds High High High
Initially, only invest the bond due in 2006 as the returnoutweighs the risks and significant risks can be mitigated.Must negotiate for higher rate of return for 2014 bond