Qatar Petroleum (QP) may "increasingly tap the debt markets" in the coming years to finance the expansion of liquefied natural gas (LNG) production capacity from the North Field, according to Fitch, a global credit rating agency.
"We expect QP's indebtedness to increase again in the coming years to finance the expansion of LNG production capacity from the North Field," Fitch said in a report.
In its forecasts for Qatar’s longer-term debt dynamics, Fitch assumes a project cost of $40bn, or 20% of GDP (gross domestic product) spread over 2020-23, some of which would be covered out of QP’s cash flow or by international partners.
QP is the largest contributor to Qatar’s non-bank GRE (government related enterprises) debt, mainly reflecting the use of debt-financing for the expansion of gas production, which has doubled over the past decade.
The hydrocarbon bellwether has already announced its plans to expand its LNG production capacity by 43% to 110mn tonnes per annum.
HE the Minister of State for Energy Affairs, Saad bin Sherida al-Kaabi, who is also the president and chief executive of QP, recently said Qatar has shortlisted international oil firms for a stake in its expanded North Field mega project, but he also hinted of going solo.
The Fitch report also said with a total balance sheet size of 190% of GDP in 2018, Qatar's banking sector is one of the largest in the region. QNB accounts for more than half of its estimate of government-related bank debt, reflecting its status as Qatar’s flagship bank and reliance on wholesale non-resident funding.
The sector’s large size reflects extensive lending to the government and GREs, rapid domestic credit growth (averaging 12%-13% over the past 3-10 years), as well as QNB’s expansion abroad.
Non-bank debt has been on a slightly decreasing trend since 2015, reflecting debt repayment by QP and Qatar Diar. This has been partly offset by banks’ incurrence of debt, the rating agency observed.
The public sector has an established record of supporting the bank and non-bank sectors: it took equity stakes and bought troubled assets from most Qatari banks in 2009-11, and injected $40bn in liquidity to offset the outflow of non-resident deposits in 2017.
The government has also taken out overdrafts against its deposits at banks in order to support their net interest margins. The government has in the past guaranteed the obligations of QP and Qatar Diar.
Qatar Airways has an ongoing sovereign guarantee, and it has increased its paid-up capital in each of the past five reporting years, Fitch said in the report.