MARC has affirmed its AAAIS rating on MISC Berhad’s RM2.5 billion Islamic Medium-Term Notes (IMTN) programme with a stable outlook.
The rating affirmation is driven by MISC’s position as a key global player in the energy-related shipping business with a large fleet of shipping vessels, its revenue-generating ability from long-term liquefied natural gas (LNG) and offshore contracts, its moderate debt and healthy liquidity position. MISC serves as the main LNG shipping provider for parent Petroliam Nasional Berhad (PETRONAS). The rating incorporates an uplift based on operational and financial integrations between both companies as well as expectation of continued parental support.
MISC has steadily expanded its fleet size to 31 LNG vessels and 77 petroleum vessels as at end-September 2019 and is expected to take delivery of seven petroleum tankers by end-2020, two LNG vessels in 2021 and a further two LNG vessels in 2023. The expansion was funded substantially by borrowings. MISC’s moderate leverage position provides headroom for additional borrowings. Furthermore, MISC’s fleet expansion is earnings accretive given that the vessels have secured long-term contracts which provide predictable earning streams to sufficiently cover its financial obligations.
In 9M2019, MISC’s consolidated pre-tax profit rose by 26.2% y-o-y to about RM1.2 billion, on the back of a 3.1% y-o-y increase in consolidated revenue to RM6.6 billion. The improvements are reflective of higher earnings contributed by its LNG segment, mainly due to fewer dry dockings in 2019 and the delivery and deployment of two LNG carriers in 4Q2018 and 1Q2019. Consolidated cash flow from operations increased by 42.9% y-o-y to about RM4.1 billion, leading to a healthy interest coverage ratio of 12.1x. Its debt-to-equity ratio stood at 0.39x; however, given its substantial cash balances, net leverage position remains low.
The stable rating outlook incorporated expectations of continued parental support from PETRONAS, steady operating performance and sound debt management practices. Currently, there is no outstanding amount under the rated IMTN programme.