Moody's: MISC Unaffected by Petronas' Decision to Buy Own Fleet

Moody's Investors Service says that Petroliam Nasional Berhad's (Petronas, A1 stable) decision to directly procure newbuild liquefied natural gas (LNG) ships to meet its LNG transportation needs has no credit impact on its subsidiary, MISC Berhad (MISC, Baa2 stable), even though MISC is the exclusive provider of LNG transport services to Petronas.

"Petronas' change in strategy is credit neutral for MISC because while MISC's strategic importance to Petronas will be somewhat diminished, MISC's leverage will improve, as it will no longer have to incur debt to fund newbuild LNG vessels, which each cost around $200 million to $250 million to build," says Vikas Halan, a Moody's Vice President and Senior Analyst.

"In fact, we view this change in Petronas' LNG shipping strategy as the parent company's commitment to help maintain MISC's credit quality, as MISC works towards improving its credit metrics. It would have been difficult for MISC to fund further newbuilds while maintaining its credit metrics within its current rating levels, without Petronas' help through, for instance, capital injections," adds Halan.

MISC's leverage increased sharply during the shipping cycle downturn in FY2010 and FY2011 to above 6.0x adjusted debt/EBITDA. However, through successful disposal of its non-performing liner business and sale of assets to reduce debt, MISC improved its credit metrics and managed its leverage down to 4.8x adjusted debt/EBITDA for last twelve months ending 31 March 2013.

Moody's notes that another indication of Petronas' support for MISC is the parent company's decision to engage MISC to provide project management and technical consultancy services for the construction of Petronas' newbuilds. The awarding of the work to MISC also benefits Petronas, because of MISC's familiarity with its parent company's business needs and its expertise in the LNG shipping sector.

"We believe that the two companies will maintain their close business links and Petronas will continue to provide strong support to MISC as has been demonstrated since MISC became Petronas' subsidiary more than 15 years ago," adds Halan.

The principal methodology used in this rating was the Global Shipping Industry Methodology published in December 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

MISC was established in 1968 as a liner company and was listed on the Kuala Lumpur Stock Exchange in 1987. In 1998, it became a subsidiary of Petroliam Nasional Berhad (Petronas). MISC has been the exclusive transporter of LNG for Petronas and provides Petronas with other logistics solutions.