Posted Date: August 13, 2020
MARC has affirmed its AAAIS rating on MISC Berhad’s RM2.5 billion Islamic Medium-Term Notes (IMTN) programme with a stable outlook. Currently, there is no outstanding under the programme.
The affirmed rating continues to benefit from rating uplift on MARC’s expectation of strong parental support from Petroliam Nasional Berhad (PETRONAS) based on the operational and financial integration between the companies. MISC serves as the main liquefied natural gas (LNG) shipping provider for PETRONAS. Its standalone rating considers stable revenue generation from LNG shipping and offshore contracts, as well as a strong liquidity position. MISC remains a key global player in the energy-related shipping business and has a sizeable fleet of LNG, petroleum and chemical vessels, as well as offshore floating assets.
Its long-term LNG shipping contracts provide earnings visibility which is expected to mitigate any impact from the COVID-19 pandemic. Its petroleum shipping segment benefitted in recent months from a spike in spot rates due to a sharp increase in demand for cargo storage space as crude oil buyers were unable to take delivery of cargoes. MISC’s heavy engineering segment continues to face challenges in replenishing its stagnant order book, which is likely to be compounded by the capex cuts by oil majors.
In 1Q2020, MISC’s revenue increased by 10.4% y-o-y to RM2,513.8 million on the back of higher revenue from petroleum, LNG and heavy engineering segments. However, due largely to the unfavourable outcome on the Gumusut-Kakap arbitration proceedings which necessitated provisions, it recorded losses of RM1,145.4 million. MISC’s revenue growth will be driven by its newbuild of 10 petroleum shuttle tankers and four LNG vessels which are expected to be delivered between 2020 and 2023.
Cash flow from operations was strong at RM2,183.9 million, with healthy CFO interest coverage of 18.70x at end-1Q2020. The group’s liquidity position remains strong, with cash balances of RM8,150.7 million. Gross debt-to-equity (DE) rose slightly to 0.39x in 1Q2020 (FY2019: 0.37x). Fleet expansion is expected to be financed by a 70:30 DE mix on a staggered basis, which implies that the leverage position could rise. Notwithstanding this, MISC’s fleet expansion is earnings accretive with secured long-term contracts.
Contacts:
Neo Xue Wei, +603 2717 2937/ xuewei@marc.com.my;
Chia Kah Yie, +603-2717 2961/ kahyie@marc.com.my;
Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my
Neo Xue Wei, +603 2717 2937/ xuewei@marc.com.my;
Chia Kah Yie, +603-2717 2961/ kahyie@marc.com.my;
Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my
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