KUALA LUMPUR, Nov 9 — Rating agency Moody’s Investors Service has affirmed the Baa2 issuer rating of MISC Bhd and revised upwards the international energy shipping company’s outlook to stable from negative.
Moody’s in a statement today said the rating reflects its view that MISC remains a core investment for Petronas, as a majority-owned, integrated shipping service provider for the Malaysian oil company’s liquefied natural gas (LNG) business.
It said the assumption was also based on the combination of the close integration between the two companies, both operationally and financially, and Petronas’ long track record of support.
“The Baa2 rating affirmation maintains the two notches of uplift from MISC’s parent, Petronas (A1 negative), reflecting Moody’s expectation that Petronas will provide extraordinary support to MISC in a scenario of stress,” Vice President and Senior Credit Officer Brian Grieser said.
Moody’s said the stable outlook reflects Moody’s view that the negative outlook on Petronas rating has no impact on its willingness or ability to support MISC on an ongoing basis due to Petronas’ strong credit profile.
“The stable outlook also reflects Moody’s expectation that MISC’s moderate leverage and high cash balances will provide a buffer against earnings pressure stemming from challenging market conditions in the LNG, tanker, offshore and heavy engineering businesses over the next 12 months,” it said.
It said the ratings could be upgraded if charter rates and MISC’s profitability begin to increase such that earnings before interest and taxes (EBIT) margins are maintained at or above 25 per cent.
It added that other factors to upgrade the ratings are adjusted debt/earnings before interest, taxes, depreciation and amortisation (EBITDA) remains below 3.5 times and retained cash flow (RCF)/debt remains around 30 per cent, all through the oil and gas shipping industry cycle.
Meanwhile, it said downward rating pressure may emerge if the company’s financial profile deteriorates owing to further pressure on its profit margins because of protracted weakness in the LNG, tanker or offshore shipping markets.
It said any changes in MISC’s relationship with Petronas that weaken Moody’s support assumption for the shipping company would also cause downward rating pressure.
“Specific indicators that would result in a downgrade include MISC embarking on a higher-than-expected debt-funded capital spending plan, such that its credit metrics weaken, as illustrated by persistent negative free cash flow; or the company’s debt/EBITDA increasing above 4.5x or EBIT margins sustained below 15 per cent, all through the oil and gas shipping industry cycle,” it added.
A 62.67 per cent-owned subsidiary of Petronas, MISC was incorporated in 1968 and is one of the world’s leading international energy shipping and maritime conglomerates.
The company operates its business through four segments—LNG shipping, petroleum shipping, offshore business and heavy engineering — managing a fleet of 117 owned and in-chartered LNG, petroleum and product vessels, as well as 15 floating assets with a combined capacity of around 13 million deadweight tonnage. — Bernama