Njord Gas Infrastructure, a consortium comprising UBS Infrastructure Fund and CDC Infrastructure, has announced that it has filed a writ of summons to initiate legal proceedings against Norway’s Ministry of Petroleum and Energy (MPE).
The move follows the decision of the MPE last June to amend tariff regulations in order that future tariffs in Gassled are reduced by as much as 90 percent. The decision was a hammer blow for various private sector investors including Njord Gas, who own more than 30 percent of the gas transportation network, which is valued at around $12.5 billion.
In a statement, Njord Gas – which bought into Gassled in 2010 – said the MPE’s decision to reduce the Gassled tariffs “does not have sufficient legal basis and must therefore be ruled invalid. The company also claims compensatory damages for the loss the company incurs as a result of the decision”.
Once the 90 percent tariff cut – which begins to take effect in 2016 – had been announced, it triggered a wave of downgrades for the debt taken out by the private sector investors to buy into the network.
The most egregious cut affected some NOK3.79 billion (€451 million; $617 million) taken out by Njord Gas, with Standard & Poor’s (S&P) reducing the rating on the senior secured index-linked bonds to BB from BBB+.
S&P said the tariff cuts would weaken the minimum and annual debt service coverage ratios over the remaining life of Njord Gas’s debt to 0.84x and 1.23x respectively, down from 1.23x and 1.46x at financial close.
According to the ratings agency, that will force the consortium to be “reliant on cash retentions ahead of the periods of low debt service coverage to fulfil scheduled debt service”. This will, in turn, require “shareholder support through the receipt of lower distributions,” S&P added.
Still, S&P was optimistic that, in the event of a default, bondholders could expect to get back between 90 percent and 100 percent of their money.
The Solveig Gas Norway consortium – a fellow investment group comprising Allianz Capital Partners, Canada Pension Plan Investment Board and the Abu Dhabi Investment Authority – also saw its debt ratings cut.
Gassled processes and transports 96 percent of the gas extracted from the Norwegian continental shelf, allowing it to be exported to the European Union (EU). It provides some 20 percent of the EU’s gas consumption and accounted for about 18 percent of its imports in 2010.