MARC Ratings has affirmed its rating of AAAIS on Pengerang LNG (Two) Sdn Bhd’s (PLNG2) Islamic Medium-Term Notes Programme of up to RM3.0 billion. The rating outlook is stable.
PLNG2 owns a regasification terminal with a capacity of up to 3.5 million tonnes per annum (mtpa), through which natural gas has been substantially supplied to the Pengerang Integrated Complex in Johor since 2017.
The rating reflects the sizeable and predictable revenue from PLNG2’s regasification services under the Incentive-Based Regulation (IBR) framework, low demand risk through a long-term usage agreement with a Petroliam Nasional Berhad (PETRONAS) related entity, and strong operating margins. MARC Ratings has also incorporated a two-notch rating uplift based on the strong support extended by the PETRONAS group to PLNG2 as is evident from the financial and operational linkages between them. PLNG2 is 65%-owned by PETRONAS Gas Berhad, which in turn is majority-held by PETRONAS.
In 1H2024, PLNG2 recorded revenue of RM318.6 million (1H2023: RM321.8 million); of this revenue, the core regasification business accounted for 97.8% or RM311.5 million, in line with expectations. The remaining is contributed by fees from ancillary business. For full year 2024, PLNG2 is expected to achieve the forecast regasification revenue of RM626.5 million. The forecast is based on the IBR framework, under which PLNG2’s annual revenue requirement is set by the Energy Commission at the beginning of each three-year regulatory period (RP); the current RP will end in December 2025. The rating agency views that revenue could decline in the subsequent RP due to the depreciation of its regulated asset base, although this would only occur if the company does not undertake capex to restore its asset base. Nonetheless, revenue would remain substantial to cover operational costs and working capital needs, as well as provide reasonable returns to PLNG2.
Operating profit margin has remained strong, standing at 48.1% for 1H2024 (1H2023: 45.4%). Cash flow from operations (CFO) of RM227.5 million provides adequate CFO interest and debt coverages of 5.01x and 0.18x due to sizeable borrowings mainly comprising the outstanding rated sukuk of RM1.4 billion and the USD jetty lease liability of RM583.0 million as at end-June 2024. Borrowings will gradually be pared down, with planned capex for jetty modification to accommodate a floating storage unit (FSU) expected to be internally funded. The FSU will be leased for its ancillary business and utilised for LNG transshipment by the PETRONAS group. Liquidity position as reflected by cash balances of RM204.4 million as at end-1H2024 remains strong.