The ratings of MARC-1ID/AA+ID and AA+ID (Islamic Debt) assigned to Gas Malaysia Sdn Bhd’s (Gas Malaysia) Al-Murabahah Commercial Paper/Medium Term Notes (CP/MTN) Programme and Al-Murabahah Medium Term Notes (MTN) Issuance Programme respectively, reflect its strong ownership structure, highly regulated industry, dominant position in the gas distribution business, efficient operations and a strong financial profile.

Gas Malaysia’s operating environment is governed by the Gas Supply Act 1993 (Gas Act) and Gas Supply Regulations 1997. The Gas Act enables Gas Malaysia to pass through any increases in gas cost by PETRONAS to customers via increases in the gas tariffs; hence introducing a certain degree of stability to its revenue and profitability. With effect from 1 October 2002 to 31 December 2005, the purchase price of gas from PETRONAS has been fixed at RM9.40 per mmBtu, following which the gas tariffs charged to customers have also been fixed by the Government.

Lending support to Gas Malaysia’s dominant position in the gas distribution business is the captive market for gas, with a low risk of customers switching to alternative fuels and high barrier to entry given the large capital requirement in constructing the gas infrastructure.

While Gas Malaysia’s customers are drawn from the industrial, commercial and residential sectors, the bulk of its revenue (98%) was contributed by the industrial sector comprising mainly manufacturing plants. Besides natural gas, LPG is also provided for residential and commercial customers, but contribution is negligible, accounting for less than 1% of total revenue.

Revenue for FYE1/2004 dipped 17.5% to RM407.2 million, reflecting the effect of the lower gas tariffs which came into effect in October 2002. Operating profit margin, nevertheless, was restored to 15.67% in FY2004 (FY2003:10.56%) following the abolition of the energy rebate and improved operating efficiency. Gas Malaysia’s debt leverage has historically been moderate, averaging 0.8x for the past five fiscal years. Its pro-forma debt leverage ratio is expected to increase to 1.6x after the initial drawdown of the facility and shall be reduced gradually with the growth in retained earnings and paring down of debts.