MARC affirms ratings on MISC, MHB bonds

PETALING JAYA: The Malaysian Rating Corp Bhd (MARC) has affirmed its “AAA” rating on MISC Bhd’s RM2.5 billion Islamic Medium-Term Notes (IMTN) programme and its “AA-” rating on Malaysia Marine and Heavy Engineering Holdings Bhd’s (MHB) RM1 billion Sukuk Murabahah Programme.
The outlook on MISC’s rating is stable, while the outlook is maintained at “negative” for MHB.
For MISC, the affirmed rating reflects a three-notch rating uplift from its standalone rating based on MARC’s assessment of significant operational and financial integration with parent Petroliam Nasional Bhd (Petronas) which the rating agency maintains a AAA stable rating.
MISC’s role as a key provider of shipping services for Petronas’ liquefied natural gas (LNG) shipping segment underscores the relationship between parent and subsidiary.
MISC’s standalone credit profile is well-supported by the stable revenue stream generated from sizeable long-term LNG and offshore contracts as well as its strong liquidity and low leverage position.
“The stable rating outlook reflects MARC’s expectation of continued parental support from Petronas. Any weakening in MISC’s importance to Petronas would prompt a reassessment of the likelihood of parental support.
“Additionally, its standalone ratings could be affected by any weakening in its credit profile,” MARC said.
Meanwhile, it said the continued negative outlook reflects MHB’s weakening profitability metrics due to higher impairment charges and lower contribution from its key heavy engineering unit arising from reduced contract flow.
These factors notwithstanding, MHB’s standalone rating is supported by its strong liquidity position and very low borrowings amounting to RM20 million under the rated sukuk programme.
MARC observes MHB’s contract order book has remained historically low at RM1.1 billion as at end-2016, underscoring the difficult environment for upstream players in the oil and gas sector.
MARC also notes that MHB has increased its focus on expanding the ship repairing business under its marine business unit segment to counter the weak prospects in offshore engineering activities.
“The standalone rating would be lowered if MHB’s performance continues to weaken (to a point) where its standalone credit profile falls below the current rating band.
“Conversely, the negative rating outlook will be revised to stable if MHB is able to sustain a meaningful order book replenishment that would reverse its declining revenue and earnings trend,” said MARC.