CREDIT ANALYSIS REPORT

PENGERANG LNG (TWO) SDN BHD - 2021

Report ID 60538900392 Popularity 86 views 26 downloads 
Report Date Nov 2021 Product  
Company / Issuer Pengerang LNG (Two) Sdn Bhd Sector Industrial Products - Oil & Gas
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC has affirmed its rating of AAAIS on Pengerang LNG (Two) Sdn Bhd’s (PLNG2) Islamic Medium-Term Notes (IMTN) Programme of up to RM3.0 billion. The rating outlook is stable.

Rationale     
The affirmed rating is premised on PLNG2’s stable and sizeable revenue generation ability under set tariffs for its regasification services, the low demand risk for the services through a long-term agreement with PETRONAS Energy & Gas Trading Sdn Bhd (PEGT) and its strong operating margins. The rating also benefits from a two-notch rating uplift based on the strong support extended to PLNG2 within the Petroliam Nasional Berhad (PETRONAS) group of companies, including PETRONAS Gas Berhad (PGB) which has a 65% interest in the company. The support assessment considers the strong operational and financial linkages between PLNG2 and the PETRONAS group. PETRONAS has a AAA/Stable rating based on publicly available information.

PLNG2 has performed in line with expectations, recording revenue of RM696.6 million in 2020 (2019: RM562.5 million) on the back of the increase in tariff under Regulatory Period 1 (RP1) (2020-2022) under the Incentive-Based Regulation (IBR) framework. In 1Q2021, PLNG2 recorded regasification revenue of RM170.4 million, on track to achieve the full year allowed regasification revenue of RM691.3 million. Operating profit margin remained strong at about 54.0% in 2020. 

Proceeds from the sukuk issuance of RM1.7 billion was largely used to refinance PLNG2’s US dollar shareholder loans equivalent to RM1.6 billion in October 2020. With the refinancing, risk of earnings volatility due to foreign exchange movement has been reduced. Its remaining US dollar debt obligation relates to the outstanding USD134.8 million (equivalent to RM559.8 million as at 1Q2021) jetty lease liability.

Cash flow from operations (CFO) remains strong at RM653.3 million with CFO interest and CFO debt coverages of 4.0x and 0.21x in 2020. Its outstanding large borrowings were utilised to finance its regasification assets and are not expected to rise sharply going forward given that PLNG2 has a moderate capex plan that is expected to be met largely by internally-generated cash. The company’s liquidity position remains robust with cash and bank balances of RM473.1 million as at end-March 2021.

Rating outlook     
The stable outlook reflects MARC’s expectations that PLNG2 will remain a strategic asset to the PETRONAS group and register profitability metrics that are in line with forecasts.

Rating trajectory

Upside scenario     
The standalone credit profile would be improved as borrowings are reduced in tandem with the increase in shareholders’ equity such that there is a marked improvement in leverage position.

Downside scenario     
The rating could come under pressure in the event of unexpected deterioration in financial performance and/or weakening support from the PETRONAS group.

Key strengths
Strategic importance to the PETRONAS group 
Predictability of revenue stream
Long-term agreement mitigates demand risk

Key challenge/risk
Operational risk 


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