MARC Ratings has affirmed its rating of AAAIS 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 rating affirmation incorporates the sizeable and predictable revenue from PLNG2’s regasification services. Under the Incentive-Based Regulation framework, PLNG2’s annual revenue requirement (ARR) is set by the Energy Commission at the beginning of each three-year regulatory period (RP) to cover operational costs and working capital needs, as well as provide reasonable returns to PLNG2 based on its regulated asset base. Tariffs will be adjusted to cover shortfalls in capacity reservation, if any, providing revenue certainty.
The rating also considers the mitigation of demand risk through a long-term usage agreement with PETRONAS Energy & Gas Trading Sdn Bhd (PEGT), a wholly-owned subsidiary of the national oil company Petroliam Nasional Berhad (PETRONAS). MARC Ratings has incorporated a two-notch rating uplift based on the firm support extended to PLNG2 by the PETRONAS group of companies and the strong financial and operational linkages between them; PETRONAS has a AAA/Stable rating from MARC Ratings based on publicly available information. PLNG2 is 65%-owned by PETRONAS Gas Berhad, with the remaining interest held by Dialog Group Berhad (indirectly 25%) and the Johor State Government (indirectly 10%).
For RP2 covering 2023 to 2025, the regasification tariff has been set lower at RM3.165/GJ/day (RP1: RM3.485/GJ/day), in line with the decrease in the regulated asset base (regasification terminal) due to depreciation. Accordingly, revenue dropped slightly to RM321.8 million in 1H2023 from RM350.4 million in the previous corresponding period, leading to weaker though still-strong operating margin at 45.5% (1H2022: 50.4%). MARC Ratings forecasts a full year revenue of RM644.1 million in 2023 based on the capacity reserved by PEGT and planned utilisation of ancillary services by PLNG2 customers.
PLNG2 generates significant cash flow from operations (CFO), which ranged from RM581.0 million to RM628.0 million in the past four years, providing strong credit protection. For 1H2023, PLNG2 reported CFO of RM271.9 million, closing the period with healthy interest and debt coverages of 5.90x and 0.21x. PLNG2 has maintained positive free cash flow, leading to a higher cash position of RM334.5 million as at end-June 2023 (end-2022: RM121.8 million). The company’s debt level remained largely unchanged at RM2.1 billion as at end-June 2023, and the rating agency does not envisage it to raise more debts in the near-to-medium term; its capex needs are relatively small and should be sufficiently covered by internal funds.