Petronas Assets Sdn Bhd - 2007

MARC has reaffirmed the rating of Petronas Assets Sdn Bhd’s (PAssets) RM282 million Bai Al-Dayn Notes Issuance Facility (NIF) at AAAID. The rating outlook is stable. PAssets is the owner and lessor of certain systems, equipment, machinery and other fixed assets and chattels located at PETROSAINS Discovery Centre (Petrosains Assets) and Tower 1 of the PETRONAS Twin Towers. The reaffirmed ratings are principally based on the credit quality of PETRONAS, the single lessee/obligor in respect of the Petrosains Assets under the structured notes. PETRONAS has an implied senior unsecured rating of AAA with a stable outlook unchanged from the time of the issue in 2001.

PAssets, a wholly-owned subsidiary of PETRONAS, acquired and subsequently granted an exclusive right of use of certain assets located at the Petrosains and Tower 1 to PETRONAS. Pursuant to the 7-year Asset Utilisation Agreement (AUA), which governs the lease between the issuer and the lessee, PETRONAS has issued Promissory Notes (PNs) in respect of rental payments for Petrosains Assets which represent the primary source of debt service under the fully amortizing notes.

The PNs offer structural protection in respect of the rental payments, ensuring predictable and stable cash flows to meet debt service under the NIF. About 87% of the rental proceeds for the Petrosains Assets are deposited into the Finance Service Reserve Account (FSRA), specifically for the redemption of principal and profit payments due under the NIF. As at 31 August 2007, the balance in the FSRA for NIF stood at RM43.3 million, sufficient to cover the RM41.0 million final redemption of the NIF due on 9 May 2008.

In FY2007, PAssets’ revenue dropped further to RM89.3 million from RM148.1 million in FY2006, due to the reduced lease rate for Tower 1 as provided for in the AUA. Despite the lower revenue reported, PAssets’ pre-tax profit improved by 92.4% to RM56 million in FY2007 from RM29.1 million in FY2006. The significant increase reflected a 70% decline in depreciation charged for the year upon certain assets being fully depreciated and an increase in gain on disposal of unquoted securities.

During the year in review, PAsset’s net CFO decreased to RM59.9 million as anticipated, as a consequence of the lower lease rate for Tower 1. The company’s cash flow protection measure remained robust with cash flow interest coverage of 3.9 times and a FSCR of 2.0 times. Its debt-to-equity ratio also reduced significantly due to the final redemption of PAsset’s RM500 million Al-Murabahah Commercial Papers/ Medium Term Notes (CP/MTN) Programme in February coupled with an increase in shareholders’ funds by 29% to RM132.0 million.

The stable outlook on the rating mirrors that of PETRONAS. PETRONAS continues to play a strategic role in the Malaysian economy, and its superior credit profile continues to be underpinned by its robust cash flow generation, strong profitability and sound capital structure.