Fitch assigns "BBB-" rating to planned eurobonds of Tengizchevroil for $1.1 bn.
12.11.04 15:47
/REUTERS, London, November 4, 04/ - Fitch Ratings, the international
rating agency, has today assigned Tengizchevroil Finance Company S.a.r.l's
upcoming issue of USD1.1 billion Series A notes due 2014 an expected
BBB-' (BBB minus) rating. The notes are to be guaranteed on a senior
secured basis by Tengizchevroil LLP ("TCO").
The expected rating is contingent upon receipt of final documents
conforming to information already received.
The notes will rank pari passu with TCO's USD2.2bn Series B notes to be
purchased by an affiliate of ChevronTexaco ("Chevtex") and USD1.1bn loan
to be provided by an affiliate of Exxon Mobil Corp ("ExxonMobil"), with similar
terms and conditions. The total USD4.4bn senior debt package is the first
debt issue by TCO. TCO is a joint-venture, operating under Kazakh law,
between affiliates of Chevtex (50%), Exxonmobil (25%), KazmunayGas
("KMG"), the Kazakh oil and gas upstream company (20%), and LUKARCO
BV (5%).
The proceeds of the USD4.4bn financing will be used to fund TCO's current
expansion called second generation project/sour gas injection (SGP/SGI).
The total cost of the project is USD4.5bn and has been equity-funded to
date. TCO will use the proceeds to finance the remaining USD1.7bn cost and
pay the rest to shareholders. TCO's production is expected to double after
the project is completed by year end-2006.
The expected rating reflects the abundant oil reserves available to TCO, the
strength of its sponsors, and the solidity of its financial ratios, as well as
the uncertainty regarding TCO's transport route for its increased production.
In TCO's base case, the projected debt service coverage ratio over a 10-year
period is expected to be 2.99x on average, with a minimum of 2.38x in 2008.
The note holders also benefit from the structure of the transaction, under
which TCO gives irrevocable payment instructions to crude-oil buyers to pay
into an offshore collection account, from which debt service is repaid.
However, Fitch notes that this account remains within the control of TCO
rather than the security trustee, and that a cash waterfall is only instigated
after an event of default has been declared. As such, the structure is viewed
as providing only a small mitigation against country risk issues (The Republic
of Kazakhstan ("RoK") is rated 'BBB-' (BBB minus)/ Stable Outlook). Note
holders also benefit from a six-month debt service reserve account, as well
as certain covenants regarding distribution to shareholders, and additional
indebtedness among others.
One of the key transaction risks is the ability of TCO to secure export routes
for its increased crude production, as its current export route, the Caspian
Pipeline Consortium (CPC) pipeline, is expected to be full by 2004. An
expansion of the CPC pipeline is being considered but has not yet been
approved. Alternative export routes are more costly and may not be sufficient
to export all of TCO's base case production. Several scenarios have been
tested to confirm that the company can service its debt with reasonable oil
price assumptions even if CPC expansion is delayed by two years.
TCO currently produces c 13 million tons per annum (MTA) of oil out of the
very large Tengiz field in Kazakhstan, under a production licence expiring in
2033.
[2004-11-04]