The ratings of Petronas Assets Sdn Bhd’s (PAssets) RM282 million Bai Al-Dayn Notes Issuance Facility (NIF) and RM500 million Al-Murabahah Commercial Papers/Medium Term Notes (CP/MTN) have been reaffirmed at AAAID and MARC-1ID/AAAID, respectively with a Stable Outlook. The reaffirmation of the ratings reflect the strong issue structure governing the NIF and CP/MTN facilities, a record of timely repayment by the company over the past 5 years, and the excellent financial profile and credit strength of Petroliam Nasional Berhad (PETRONAS), the sole off taker.

PETRONAS, the user of specific assets belonging to PAssets is the sole obligor of Promissory Notes (PNs) and Asset Utilisation Fees (AUF), which form the primary source of repayment for the NIF and CP/MTN facilities respectively. PETRONAS continues to play a strategic role in the Malaysian economy and its continued strong performance underpinned by robust cash flow generation, strong profitability and a sound capital structure underscores its superior credit strength.

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 the 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 AUFs for Tower 1 Assets.

The establishment of Finance Service Reserve Accounts (FSRAs) for both the NIF and CP/MTN programmes mitigates liquidity risk as specified 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 principal and profit payments due under 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 the Tower 1 Assets, an agreed percentage of between 70% and 90% (87% for period of Feb 06 to Jan 07) of the monthly AUF shall be deposited into the FSRA for the primary purpose of redeeming the CP/MTN and the settlement of profit payments.

PAsset’s revenue decreased to RM148.1 million in FY2006 from RM205.1 million in FY2005, due to an agreed reducing lease rate structure incorporated in the Asset Utilization Agreement (AUA). Pre-tax profit however increased to RM29.1 million from RM18.3 million year on year, due to significantly lower depreciation expenses which resulted in the company’s operating margin increasing to 30.5% in FY2006 (FY2005:19.7%). The main expense item during the year was depreciation of property, plant and equipment which amounted to RM111.5 million (FY2005: RM173.3 million). The company’s cash flow protection measures decreased slightly with a finance service coverage ratio (FSCR before investing and financing) of 2.5 times and cash flow interest coverage of 6.9 times in FY2006 (FY2005:2.9 times and 8.2 times, respectively). Principal repayments in 2007 are expected to be comfortably met due to a steady build up of cash in the FSRA.