Moody's affirms MISC issuer rating, outlook stable

KUALA LUMPUR: Moody's Investors Service has affirmed the Baa2 issuer rating of international energy shipping and maritime conglomerate MISC BHD. The rating outlook is stable. 

A Moody's vice president and senior credit officer, Brian Grieser said on Friday the Baa2 rating affirmation maintains the two notches of uplift from MISC's parent, Petroliam Nasional Bhd (Petronas, A1 negative).

This reflects Moody's expectation that Petronas, which owns a 62.67% stake in MISC, will provide extraordinary support to MISC in a scenario of stress, he said.

The rating affirmation follows Moody's affirmation of Petronas's rating and change in outlook to negative from stable. 

The rating reflects Moody's view that MISC remains a core investment for Petronas, as a majority-owned, integrated shipping service provider for Petronas' liquefied natural gas business. 

Moody's support assumption combines the close integration between the two companies, both operationally and financially, and Petronas' long track record of support. 

“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,” Moody's said. 

Moody's said the ratings could be upgraded if charter rates and MISC's profitability begin to increase such that EBIT margins are maintained at or above 25%, adjusted debt/EBITDA remains below 3.5 times and retained cash flow (RCF)/debt remains around 30%, all through the oil and gas shipping industry cycle. 

However, it cautioned that downward rating pressure may emerge if (1) 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; or (2) there are any changes in its relationship with Petronas that weaken Moody's support assumption for MISC. 

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.

Another factor is if the company's debt/EBITDA increasing above 4.5 times or EBIT margins sustained below 15%, all through the oil and gas shipping industry cycle. 

MISC manages a fleet of 117 owned and in-chartered LNG, petroleum and product vessels, as well as 15 floating assets. 

The fleet has a combined capacity of around 13 million deadweight tonnage. 


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