MISC Bhd - 2007

The rating of AAAID (Islamic Debt) assigned to MISC Berhad’s (“MISC” or “the Group”) up to RM2.5 billion Islamic Medium Term Notes (“MTN”) Programme reflects the Group’s solid operating fundamentals; its dominant position in the Malaysian shipping industry particularly the liquefied natural gas (“LNG”) segment; extended geographic footprint through its petroleum tanker unit AET (formerly known as American Eagle Tanker Inc. Ltd); sound financial profile characterised by resilient profitability, low debt leverage and exceptional financial flexibility; and strategic benefits accruing to MISC as a subsidiary of Petroliam Nasional Berhad (“PETRONAS”).

MISC is the dominant shipping and logistics services provider in Malaysia especially in the transportation of LNG, crude oil and petroleum products. As at 29 June 2007, the Group owns a diversified fleet of 108 owned vessels and six (6) Floating, Production, Storage and Offloading (FPSO)/ Floating, Storage and Offloading (FSO) facilities. MISC is the largest single owner operator of LNG carriers in the world with a fleet of 24 tankers, which is expected to increase to 29 tankers by end-2009. As the sole transporter of LNG from Malaysia (the world’s third largest LNG exporter), MISC is in a favourable position to benefit from the growing demand for LNG transportation through long term contracts, which average 15 to 20 years.  MISC has also become the second largest owner operator of Aframax tankers following its acquisition of AET with a market reach that covers the Atlantic Basin, Europe, Mediterranean, Arabian Gulf and the Far East.

For financial year ended March 31, 2007 (FY2007), MISC achieved total revenue of RM11,198.9 million; a 4.20% increase from RM10,747.1 million for FY2006 mainly due to increased earnings in petroleum shipping business on the back of firmer VLCC freight rates and an expanded vessel fleet. Excluding an exceptional gain from the disposal of vessels, the Group’s pre-tax profit stood at RM2,493.8 million, 7.59% lower than the prior corresponding period. The lower pre-tax profit was reflective of lower charter rates for some of the LNG fleets and losses incurred by its integrated liner logistics division. The Group’s operating profit margin (excluding the exceptional gain) stood at 25.13% in FY2007. For the first quarter ended June 30, 2007 (1QFY08), MISC recorded growth in revenue and pre-tax profit (excluding the exceptional gain) of 7.45% and 9.65% to RM2,921.2 million and RM574.0 million respectively, as compared to the previous corresponding period.  MISC’s US Dollar denominated shipping revenue provides a natural hedge against exchange rate volatility in relation to the Group’s foreign currency debt obligations and USD-based capex programme.

Despite higher operating costs, the Group’s cash flow coverage remained strong on the back of the stable charter revenue stream from the LNG shipping business. Together with its substantial cash reserves, the Group should withstand a reasonable degree of earnings volatility in its non-LNG shipping businesses. MISC’s financial flexibility is deemed very strong in the light of its substantial cash balance totalling RM2,179.7 million as at June 30, 2007; its 62.44% ownership by PETRONAS; and superior access to capital markets (both local and international). Additionally, MISC’s low debt leverage of 0.35 times as at June 30, 2007 is considered low by global shipping industry norms.