Gas Malaysia Sdn Bhd - 2008/2009

MARC has affirmed its ratings on Gas Malaysia Sdn Bhd’s (Gas Malaysia) RM200 million Commercial Papers / Medium Term Notes (CP/MTN) Programme and RM500 million Medium Term Notes (MTN) Programme at MARC-1ID / AAAID and AAAID respectively. The ratings carry a stable outlook. The affirmed ratings reflect Gas Malaysia’s dominant market position as the sole natural gas distributor in Peninsular Malaysia, strong demand and growth potential for piped natural gas, and its robust financial profile. Gas Malaysia operates under a favourable tariff-setting regime which mitigates the impact of volatile oil and gas prices and promotes earnings and cash flow stability.  

Gas Malaysia is owned by MMC Corporation Berhad-Shapadu Corporation Sdn Bhd (55%), Tokyo Gas-Mitsui Consortium (25%) and Petronas Gas Berhad (20%). National oil company, Petroliam Nasional Berhad (Petronas) holds one Special Share in Gas Malaysia. The natural gas utility’s long-term gas supply agreement with Petronas until fiscal year 2012 for the purchase of gas mitigates supply risk concerns. The closely regulated natural gas tariff setting regime provided timely and full cost recovery for purchased gas through adequate rate increases in August 2008 following an upward revision in the cost of purchased gas from Petronas to reflect the surge in gas market prices. In February 2009 when the government lowered the price of purchased gas to Gas Malaysia and natural gas tariffs, the revised tariffs allowed the natural gas distributor’s operating margins to be largely preserved. The current tariff setting process provides for half yearly reviews of gas prices.

Gas Malaysia’s revenue and pre-tax profit for the financial year ended December 31, 2008 (FY2008) rose to RM1.88 billion (FY2007: RM1.39 billion) and RM356.5 million (FY2007: RM292.9 million) respectively. Its operating margin narrowed slightly to 18.80% (FY2007: 21.45%) as a result of the revision in the tariff pricing structure. Higher earnings and deferred capital spending enabled the utility to record free cash flow of RM220.3 million (FY2007: RM183.2 million) and retire all its borrowings in FY2008. Gas Malaysia’s financial flexibility continues to be favourable, as reflected by its cash balance and unencumbered deposits of RM281.3 million as of end-FY2008 and available borrowing capacity. There are no amounts currently outstanding under the rated programmes.

The stable outlook reflects MARC’s expectations that Gas Malaysia would maintain its solid credit profile through the economic downturn, underpinned by its regulated revenue stream, good operational record and strong underlying business base.

Major Rating Factors

Strengths

Challenges/Risks