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