MARC has affirmed its rating of AAA_IS on Pengerang LNG (Two) Sdn Bhd’s (PLNG2) Islamic Medium-Term Notes (IMTN) Programme of up to RM3.0 billion. The rating outlook is stable.

The affirmed rating is premised on PLNG2’s stable and sizeable revenue generation ability under set tariffs for its regasification services, the low demand risk for the services through a long-term agreement with PETRONAS Energy & Gas Trading Sdn Bhd (PEGT) and its strong operating margins. The rating also benefits from a rating uplift based on the strong support extended to PLNG2 within the Petroliam Nasional Berhad (PETRONAS) group of companies, including from PETRONAS Gas Berhad (PGB) which has a 65% interest in the company. The support assessment also considers the strong operational and financial linkages between PLNG2 and the PETRONAS group. PETRONAS has a AAA/Stable rating from MARC based on publicly available information.

PLNG2 has performed in line with expectations, recording a revenue increase of 23.8% y-o-y to RM696.6 million in 2020 on the back of an increase in tariff under the Regulatory Period 1 (2020-2022) under the Incentive-Based Regulation (IBR) framework. In 1Q2021, PLNG2 recorded regasification revenue of RM170.4 million, on track to achieve the full year allowed regasification revenue of RM691.3 million. Operating profit margin remained strong at about 54.0% in 2020.

Cash flow from operations (CFO) remains strong at RM653.3 million with CFO interest and CFO debt coverages of 4.0x and 0.21x in 2020. Its outstanding large borrowings were utilised to finance its regasification assets and are not expected to increase sharply going forward given that PLNG2 has a moderate capex plan that is expected to be met largely from internally generated cash. The company’s liquidity position remains robust with cash and bank balances of RM473.1 million as at end-March 2021.

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