CariCRIS lowers the ratings on
NiQuan Energy Trinidad Limited
21 May 2021
Further to our Rating Watch assigned on 09th April 2021, Caribbean Information and Credit Rating Services Limited (CariCRIS) has lowered the assigned issuer/corporate credit ratings of NiQuan Energy Trinidad Limited (NETL or the Company) by 2-notches to CariA- (Foreign and Local Currency Ratings) on the regional rating scale and ttA- on the Trinidad and Tobago (T&T) national scale. These ratings indicate that the level of creditworthiness of this obligor, adjudged in relation to other obligors in the Caribbean and within T&T is good.
Our lowering of the assigned ratings is driven by the multiple consecutive delays by NETL in achieving full-scale commercial production, with an incident[1] at the plant that occurred in April 2021 expected to further delay production by at least another five months. These delays have resulted in the Company’s inability[2] to effectively conclude the refinancing of its existing US $120 million debt facility, thereby increasing its credit risk profile.
CariCRIS also assigned a stable outlook on the ratings. The stable outlook is based on our expectation that, barring any other unforeseen circumstances or events, once commercial operations successfully begin, we expect NETL to be comfortably able to meet all its interest and principal repayments as they come due over the life of the refinanced facility. The stable outlook is also supported by the strong actions taken by the Company post the incident to prevent recurrence, including the commissioning of an independent Root Cause Analysis report, the recommendations from which are already being implemented.
However, should NETL not be able to achieve full commercialisation over the next five to eight months, a pre-requisite for a successful Lender’s Reliability Test certification (LRT)[3] and refinancing, we may likely lower the Company’s ratings again.
Key Rating Drivers
The key factors supporting the ratings continue to be:
- Use of reputable and commercially tested technology which maximizes the likelihood of a successful operation;
- Legally binding supply and offtake agreements in place;
- Critical importance of the end products along with a highly supportive regulatory framework together drive favourable demand conditions;
- Favourable projected financial performance with adequate debt servicing capacity based on its operational efficiency guarantee output level;
- The Owner-Controlled Insurance Program (OCIP) which serves as an additional layer of protection to the lenders; and
- A knowledgeable and experienced Board of Directors and Executive Management team within a good supporting organizational structure.
The key factor constraining the rating is the Company’s vulnerability to the cyclicality of global energy prices.
Projected financial performance
In response to the plant incident, NETL has successfully obtained unanimous consent by noteholders of the US $120 million Senior Secured construction bridge loan to extend the maturity date to the 30th June, 2021 and to capitalize interest due and payable until that date. This has allowed the company to remain current in all of its financial obligations.
For our projections, we have assumed a further extension of the US $120 million facility to December 2021 and the commencement of full production and commercialization of operations on October 1st, 2021. We have also assumed a successful LRT allowing for the 18-month US $120 million note and the associated capitalized interest to be refinanced by a US $150 million 10-year facility[4]. NETL is expected to generate total revenue of US $16.3 million for the 3-month period (October-December 2021) and average revenue of around US $72.3 million per annum thereafter from 2022 to 2031. With interest expenses of approximately US $12.1 million annually, we expect profit after tax (PAT) and operating cash flow to average US $1.7 million and US $54.2 million per annum respectively over the 2022 to 2031 period[5].
Assuming NETL acquires the additional financing, we expect NETL to comfortably meet all its interest and principal repayments as they come due over the life of the refinanced facility. NETL’s average interest cover for the period 2022 to 2031 is expected to be of the order of 2.7 times and its debt service coverage ratio (DSCR) to average 1.9 times.
Over the life of the refinanced facility, the ratio of debt to tangible net worth (TNW) reduces with the accretion of profits and retained earnings. Financial flexibility during the early years of operation is reduced, and as such, CariCRIS has assumed dividend payouts will commence from December 2024.
Rating Sensitivity Factors:
Factors that could, individually or collectively, lead to an improvement in the ratings/outlook:
- Higher than projected revenues and profits based on favourable selling prices and lower than projected operating costs.
Factors that could, individually or collectively, lead to a lowering of the ratings/outlook:
- Unsuccessful start-up of full commercial operations by December 2021 and/or production falling below 2,400 bpd.
- Absence of a functioning Offtake Agreement with either the existing contracted offtaker or an alternate offtaker at the time of plant start up.
- A fall in the Interest Cover to below 2.5 times and/or a drop in the Effective Debt Service Coverage Ratio to below 1.3 times post start-up.
- Failure to refinance the 18-months note or obtain approval for a further extension by noteholders by June 30th , 2021.
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For more information on the ratings of NiQuan Energy Trinidad Limited, please visit www.caricris.com or contact:
| Kathryn Budhooram OR Anelia Oudit |
Senior Manager, Rating Operations, Manager, Ratings Strategic Planning and Brand Development Tel: 1-868-627-8879 Ext. 226 |
Tel: 1-868-627-8879 Ext. 227 Cell: 1-868-487-8364 Cell: 1-868-706-6510 E-mail: aoudit@caricris.com |
E-mail: kbudhooram@caricris.com
Note
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