Infrastructure Finance

Professor Robert B.H. Hauswald

Project Design and Appraisal

Kogod School of Business, AU

Case Study
The Ras Laffan Liquefied Natural Gas Company Limited

This case is meant to illustrate the increasingly important role that capital markets have started
to play in large infrastructure finance projects. Not only was a major part of the project financed
by one of the largest bond issues emanating from the Middle East, it also highlights how the
financial structure can be used to better distribute risks, control rights and returns between the
parties involved. The Ras Gas global bond offering constituted a milestone in the annals of project
financing that demonstrated how capital markets help to achieve lower funding costs through the
design of an optimal capital structure.
In preparation for the case discussion you should carefully read Randolph, G. and A. Schrantz
(1997), The Use of Capital Markets to Fund the Ras Gas Project, Journal of Project Finance
3 (Summer 1997) and answer the following questions related to the article. Please look at all the
points which will facilitate the understanding and subsequent discussion of the case.
1. The setting: corporate structure, natural resource extraction and customer base.
(a) Describe the corporate structure and ownership distribution. What do the equity stakes
reflect? What crucial part of the project is each party contributing?
(b) What is the projects purpose? Describe the required facilities and development costs.
(c) Analyze the customer base and products sold.
2. Analyze the financial structure of the project; in particular, distinguish carefully between the
different sources of debt finance and their role in the overall project funding.
(a) How is the funding split between debt and equity? How much capital does each partner
contribute?
(b) Describe the different debt components. What kind of enhancements (guarantees) were
supplied and for which part of the debt finance?
(c) How are the bank and bond financing structured? Compare the maturity structures of
the two debt finance modes.
3. From loans to bond finance: financial advisory services and market conditions.
(a) What role did the investment bank (Goldman Sachs) play in designing the financial
structure? How did they get involved? What was its major concern early on in the
design of the financial structure?
(b) How did the funding plans evolve over time? Describe the initial plans and the actual
finance. What was the driving factor behind the change in structure?

(c) Why do you think did the Ras Gas project decide to tap international capital markets
rather than go with conventional syndicated loan finance?
(d) How does the Qatar rating compare to other sovereign borrowers and what is its importance for the gas project? What was the projects credit rating objective and outcome?
4. Financial objectives and structure: designing an optimal capital structure.
(a) Describe the five funding objectives of Ras Gas. What are the benefits of contractorarranged financing for the project?
(b) Analyze the bidding process. What is the advantage of soliciting joint construction and
financing bids? What was the outcome?
(c) What role did LNG play in the funding process? How was it used to assuage lender
concerns?
(d) List the three reasons to include debt securities in the financial structure. Are there any
other advantages to capital markets debt?
5. Arranging the bond offering: underwriters, marketing and outcome.
(a) How do you think did Ras Gas pick the lead underwriters? Why?
(b) Analyze the bond marketing strategy. What was the targeted investor base? How was
the maturity structure designed? Describe the main marketing themes.
(c) What was the outcome of the bond offering? Who bought the issues? How were they
priced and what did it Ras Gas help to achieve?
6. Legal structure and distribution of lender control.
(a) List the parties competing for lender control. How was any group of lenders prevented
from exercising too much control?
(b) What are the costs and benefits of limiting any given lenders ability to influence the
project? When does it matter and why?