MARC Ratings has affirmed its AAAIS rating on MISC Berhad’s RM2.5 billion Islamic Medium-Term Notes (IMTN) programme with a stable outlook.
The rating incorporates MISC’s position as a domestic leader and a key global player in the energy-related shipping business, its stable revenue generation from long-term liquefied natural gas (LNG), ethane and offshore contracts, and its low-to-moderate leverage and healthy liquidity positions. The rating is notched up based on strong parental support from Petroliam Nasional Berhad (PETRONAS) (rated AAA/Stable) for which MISC serves as the main LNG shipping provider.
MISC’s long-term charter contracts for LNG, ethane and offshore assets continued to provide steady revenue to the group, having contributed to more than half in 1Q2022. The contracts are on fixed rates and therefore are not exposed to the volatility in market charter rates. In other segments, MISC’s petroleum shipping has benefited from increased charter rates in the mid-size tanker segment, while its heavy engineering operations have improved since the resumption of economic activities.
In 1Q2022, the group’s revenue increased by 12.9% y-o-y, contributed by higher revenue in all segments. The group is not significantly affected by high fuel prices as fuel cost is passed-through to customers under the group’s time charter contracts. However, financial performance could be weighed down by global supply chain disruptions which remain a key risk to project completion of its on-going assets under construction.
As at end-March 2022, MISC operates a fleet of 90 owned and seven chartered-in vessels, and 12 offshore floating facilities. The group continues to invest in new assets and is expected to receive two LNG carriers and four petroleum tankers by 2023 as well as a floating production storage and offloading (FPSO) in 1H2024. Given the group’s significant capex for the new assets, we expect free cash flow to remain negative.
MISC maintains a strong liquidity position with cash balances of RM5.6 billion. The group’s debt-to-equity (DE) ratio stood at 0.44x with a net DE of 0.28x as at end-March 2022. The group plans to sell part of its stake in the FPSO Mero 3 project to mitigate a potentially higher leverage level from additional borrowings.