MARC Ratings has affirmed its rating of AAA_IS 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.

The affirmed rating reflects the sizeable and predictable revenue from PLNG2’s regasification services under the Incentive-Based Regulation (IBR) framework, and the mitigation of demand risk under its long-term usage agreement with related company PETRONAS Energy & Gas Trading Sdn Bhd (PEGT), a wholly-owned subsidiary of Petroliam Nasional Berhad (PETRONAS). MARC Ratings has incorporated a two-notch rating uplift based on the strong support extended to PLNG2 by the PETRONAS group of companies, and the strong operational and financial linkages between them.  

In 1H2022, PLNG2 recorded regasification revenue of RM342.8 million and forecast to achieve revenue of RM691.3 million for full 2022 based on the firm capacity reserved by PEGT. Operating profit was RM177.0 million while operating profit margin remained strong at 50.5% in 1H2022, although it declined from 62.8% in 2021 due to the impact from the weak ringgit against the US dollar. This had resulted in foreign exchange loss of RM26.7 million in 1H2022, mainly due to a translation loss of US dollar jetty lease liability; the lease stood at USD122.7 million (equivalent to RM540.2 million) and constituted 25% of total borrowings as at end-June 2022. 

PLNG2 is finalising its annual revenue requirement (ARR) for the next regulatory period (2023-2025) by end-2022. Assuming all other factors remain unchanged, the ARR could be slightly lower, reflecting a lower regulated asset base (regasification terminal) after considering depreciation; regulated assets are a key factor in determining ARR under the IBR framework. The IBR framework provides sufficient revenue to cover costs and return to the company.

In 1H2022, cash flow from operations (CFO) was strong at RM288.1 million with CFO interest and debt coverages of 6.41x and 0.23x. Debt-to-equity (DE) ratio rose to 3.67x (covenant: 4.0x), mainly due to an increase in jetty lease liability due to the appreciation of the US dollar. In addition, equity declined following the redemption of redeemable preference shares amounting to RM370.7 million. MARC Ratings does not envisage PLNG2 to raise additional borrowing as capex requirement is relatively small and sufficiently covered by internal liquidity. Cash balances remained healthy at RM176.1 million as at end-June 2022.

Siti Nursyahira, +603-2717 2956/ nursyahira@marc.com.my 

Neo Xue Wei, +603-2717 2937/ xuewei@marc.com.my 

Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my