FITCH ASSIGNS TENGIZCHEVROIL NOTES 'BBB-' RATING
08.12.04 11:08
/REUTERS, London, December 8, 04/ - Fitch Ratings-London-08 December
2004: Fitch Ratings, the international rating agency, has today assigned
Tengizchevroil Finance Company S.ar.l's USD1.1 billion Series A notes due 2014
a 'BBB-' rating. The notes are guaranteed on a senior secured basis by
Kazakhstan-based Tengizchevroil LLP ("TCO").
The notes rank pari passu with TCO's USD2.2bn Series B notes purchased by an
affiliate of ChevronTexaco ("Chevtex") and USD1.1bn loan 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 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 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 around 13 million tons per annum of oil out of the very
large Tengiz field in Kazakhstan, under a production licence expiring in 2033.
[2004-12-08]