The reaffirmation of the ratings reflects the credit strength of Petroliam Nasional Berhad (PETRONAS); the user of specific assets belonging to Petronas Assets Sdn Bhd (PAssets) and the obligor of the Promissory Notes (PNs) and Asset Utilisation Fee (AUF). Payments arising from the PNs and AUF form the primary source of repayment of the Bai Al-Dayn Notes Issuance Facility (NIF) and Al-Murabahah Commercial Papers/Medium Term Notes (CP/MTN) respectively. PETRONAS’ credit strength is superior and is drawn from its robust cash flow generation that is supported by a favourable production profile, strong profitability measures, sound capital structure and its strategic role in the Malaysian economy.

PAssets is a wholly owned subsidiary of PETRONAS and is in the business of owning and leasing of assets. The company acquired and subsequently granted an exclusive right of use of certain assets located at PETROSAINS Discovery Centre (Petrosains Assets) and Tower 1 of the PETRONAS Twin Towers (Tower 1 Assets) to PETRONAS. In consideration for this exclusive right, PETRONAS has issued PNs for Petrosains Assets and agreed to pay AUF for Tower 1 Assets.

The establishment of the Finance Service Reserve Accounts (FSRAs) for both the NIF and CP/MTN programme mitigates liquidity risk since certain portions of the rental payments from PETRONAS will be directed into the FSRAs. Proceeds in the FSRA will be utilised specifically for the redemption of the principal amount and profit payments of the NIF and CP/MTN programme. For the NIF, a sum
equivalent to 87% of the rental proceeds for the Petrosains Assets will be deposited into the FSRA. As for Tower 1 Assets, an agreed percentage of between 70% and 90% of the monthly AUF shall be deposited into the FSRA for the primary purpose of redeeming the CP/MTN and the settlement of the profit payments.

PAssets’ revenue decreased to RM205.1 million in FY2005 from RM206.05 million in FY2004, due to the reducing lease rate as had been agreed up-front in the AUF at the beginning of the Asset Utilization Agreement (AUA). This led to a decrease in pre-tax profit to RM18.3 million from RM35.1 million previously, which was also due to higher depreciation expenses.

Due to its high cost of services, the company’s operating margin has decreased to 19.73% in FY2005 (FY2004:30.62%). The main expense item during the year was depreciation of property, plant and equipment of RM173.3 million (FY2004: RM151.6 million). The company’s cash flow protection measures increased slightly with a finance service coverage ratio (FSCR before investing and financing) of 2.9 times and cash flow interest coverage of 8.1 times in FY2005 (FY2004: 2.2 times and 8.4 times respectively).

The outstanding limit of the Bai Al-Dayn and CP/MTN facility stands at RM122 million (as at May 2005) and RM210 million (as at February 2005) respectively. Going forward, PAssets debt leverage is expected to decline in tandem with the gradual repayment of the notes.