Friday, Jun 23, 2000
Malaysian Rating Corporation Berhad (MARC) has assigned ratings of MARC-1/AAAID to Malaysia International Shipping Corporation Berhad’s (MISC) RM1.5 billion Murabahah Commercial Paper/Medium Term Notes Programme (2000/2005) respectively. The ratings reflect strong and stable earnings from its predominantly low-risk business of LNG shipping, good profitability record, strong cash flow position, solid capitalization and the presence of PETRONAS as the majority shareholder.
Established in 1968 as the national shipping line, MISC’s initial focus was in the business of liner shipping. Through the years, MISC subsequently diversified into the transportation of dry bulk commodities, petroleum, gas and chemicals. In November 1998, MISC embarked on an acquisition trail, which saw the group acquiring a LNG shipping company (PETRONAS Tankers Sdn. Bhd. or PTSB in short), a bulk shipping operator, and 51% equity stakes in two LNG shipping operators and shipping vessels as well as newbuildings from PNSL Berhad. Upon the completion of the PTSB transaction, which was financed by an issue of new MISC shares, PETRONAS emerged as a 62% shareholder of MISC. The enlarged MISC group is now the largest single LNG tanker operator in the world with a fleet of 13 vessels and one of the largest dry bulk operators in Asia in terms of fleet size.
The recent acquisitions have had the effect of improving MISC’s overall business risk profile. Apart from facilitating increased economies of scale, the group’s vulnerability to the historically more volatile shipping segments of dry bulk and liner has decreased as a result of the growing proportion of resilient and recurring earnings from its enlarged LNG shipping operations. Further, MISC expects material, operational, financial and strategic benefits to be realized through its integration into the PETRONAS group. MISC’s position as an important provider of shipping services to PETRONAS with respect to the transportation of LNG, crude oil, petroleum products and petrochemicals is unquestioned.
Substantial profit contribution in recent years from MISC’s growing LNG shipping segment (96% of total shipping profit) has more than offset the dismal performance from its dry bulk shipping and liner segments. Underpinning the strong performance of the LNG Services Division, is a recurring US Dollar denominated charter revenue stream derived from 20-year time charters with Malaysia LNG, a subsidiary of PETRONAS, for the carriage of LNG. As for the liner and dry bulk segments, their sensitivity to worldwide levels of business activity, the high capital intensity of these businesses and frequent supply-demand imbalance continue to subject these businesses to a high degree of competition and cyclicality. Nonetheless, MARC expects these segments to demonstrate improved profitability in the near-term as MISC benefits from improved trade flows and recovery in Asian economies.
The group’s debt leverage has risen on account of MISC’s acquisition activity. Consolidated debt to equity ratio increased to 0.9 times on an absolute basis. This level is still considered low by shipping industry standards. MARC expects the group’s strong cashflow generation will be able to restore debt leverage to its previously conservative financial profile. The group’s cash flow protection measures are capable of accommodating a reasonable degree of earnings volatility in the non-LNG shipping businesses.
MISC enjoys exceptional financial flexibility, in the light of its substantial cash balance, its 62% ownership by national oil company, PETRONAS, and superior access to capital markets. Its exceptionally good financial performance for the twelve months ended December 31, 1999, has enabled the group to accumulate a large amount of cash, equivalent to 1.5 times of its debt service requirements at end-1999. US Dollar denominated shipping revenues provide a natural hedge against exchange rate volatility in relation to the group’s sizeable foreign currency debt obligations, mostly carried in PTSB’s books. The group’s short-term debt exposure is limited, representing only 7% of its total debt.
Established in 1968 as the national shipping line, MISC’s initial focus was in the business of liner shipping. Through the years, MISC subsequently diversified into the transportation of dry bulk commodities, petroleum, gas and chemicals. In November 1998, MISC embarked on an acquisition trail, which saw the group acquiring a LNG shipping company (PETRONAS Tankers Sdn. Bhd. or PTSB in short), a bulk shipping operator, and 51% equity stakes in two LNG shipping operators and shipping vessels as well as newbuildings from PNSL Berhad. Upon the completion of the PTSB transaction, which was financed by an issue of new MISC shares, PETRONAS emerged as a 62% shareholder of MISC. The enlarged MISC group is now the largest single LNG tanker operator in the world with a fleet of 13 vessels and one of the largest dry bulk operators in Asia in terms of fleet size.
The recent acquisitions have had the effect of improving MISC’s overall business risk profile. Apart from facilitating increased economies of scale, the group’s vulnerability to the historically more volatile shipping segments of dry bulk and liner has decreased as a result of the growing proportion of resilient and recurring earnings from its enlarged LNG shipping operations. Further, MISC expects material, operational, financial and strategic benefits to be realized through its integration into the PETRONAS group. MISC’s position as an important provider of shipping services to PETRONAS with respect to the transportation of LNG, crude oil, petroleum products and petrochemicals is unquestioned.
Substantial profit contribution in recent years from MISC’s growing LNG shipping segment (96% of total shipping profit) has more than offset the dismal performance from its dry bulk shipping and liner segments. Underpinning the strong performance of the LNG Services Division, is a recurring US Dollar denominated charter revenue stream derived from 20-year time charters with Malaysia LNG, a subsidiary of PETRONAS, for the carriage of LNG. As for the liner and dry bulk segments, their sensitivity to worldwide levels of business activity, the high capital intensity of these businesses and frequent supply-demand imbalance continue to subject these businesses to a high degree of competition and cyclicality. Nonetheless, MARC expects these segments to demonstrate improved profitability in the near-term as MISC benefits from improved trade flows and recovery in Asian economies.
The group’s debt leverage has risen on account of MISC’s acquisition activity. Consolidated debt to equity ratio increased to 0.9 times on an absolute basis. This level is still considered low by shipping industry standards. MARC expects the group’s strong cashflow generation will be able to restore debt leverage to its previously conservative financial profile. The group’s cash flow protection measures are capable of accommodating a reasonable degree of earnings volatility in the non-LNG shipping businesses.
MISC enjoys exceptional financial flexibility, in the light of its substantial cash balance, its 62% ownership by national oil company, PETRONAS, and superior access to capital markets. Its exceptionally good financial performance for the twelve months ended December 31, 1999, has enabled the group to accumulate a large amount of cash, equivalent to 1.5 times of its debt service requirements at end-1999. US Dollar denominated shipping revenues provide a natural hedge against exchange rate volatility in relation to the group’s sizeable foreign currency debt obligations, mostly carried in PTSB’s books. The group’s short-term debt exposure is limited, representing only 7% of its total debt.