Saturday, September 19, 2009

Ratings on MISC affirmed At 'A-', negative outlook

Standard & Poor's Ratings Services has affirmed its 'A-' corporate credit rating on MISC BHD but the outlook on the rating remains negative.

The rating on US$700 million notes due in 2014, issued by MISC Capital (L) Ltd., has also been affirmed at 'A-'.

The international rating agency said on Sept 18 the rating on MISC reflected the company's stable recurring cash flow from long-term charter contracts secured by the liquefied natural gas (LNG) and offshore business units.

Other positive factors were the strengthening position in the heavy engineering market, strong track record in petroleum shipping, and dominant position in lightering operations in the Gulf of Mexico region.

The rating also benefits from MISC's integral position as an important subsidiary of Petronas (foreign currency A-/Stable/--, local currency A+/Stable/--, ASEAN scale 'axAAA').

Directly and indirectly, Petronas accounted for approximately 51% of MISC's operating profit before liner and chemical segment losses in the financial year ended March 31, 2009.

However, these strengths are tempered by the inherently high-risk shipping industry, due to its cyclical and capital-intensive nature, as well as its volatile market conditions, which have resulted in losses in MISC's container shipping business, exerting pressure on its credit ratios.

"The rating also reflects the possibility of higher leverage as MISC takes delivery of new debt-funded vessels over the next few years," said Standard & Poor's credit analyst Manuel Guerena.

MISC is the world's third-largest publicly traded shipping company by market capitalization. It also has the world's largest owned LNG carrier fleet and third-largest Aframax fleet.

MISC is 62.4% owned by Petronas. Hence, MISC has strategic importance to Malaysia's position as the world's third-largest LNG exporting nation.

Despite this, the company's performance has not escaped the weak industry conditions that have seen lower earnings in the LNG and chemical shipping segments, and an operating loss before tax of US$255 million in its container shipping segment in fiscal 2009.

"The company plans for US$3.4 billion in capital expenditures in the next three years, primarily in the offshore, petroleum and heavy engineering segments with funding that could put additional pressure on MISC's financial risk profile," Guerena said.

MISC's FFO to total debt and OLA gross debt to EBITDA ratios could deteriorate further, if MISC keeps on increasing its debt to pursue its capital expenditure plan. However, potential changes in its funding structure could offset these challenges.

The negative rating outlook reflects the severe downturn in the shipping industry, particularly the container shipping segment, which is exerting pressure on MISC's credit protection measures. It also captures uncertainty surrounding the funding plan for MISC's ongoing capital expenditure.

Source: EdgeDaily

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