06.12.2012 08:13
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MISC Berhad -- Moody's changes outlook on MISC's Baa2 rating to stable from negative

Singapore, December 06, 2012 -- Moody's Investors Service today affirmed the Baa2 issuer ratings on MISC Berhad ("MISC") and changed the outlook back to stable from negative.

At the same time, Moody's has also affirmed the ratings on the USD-denominated bonds issued by MISC Capital and guaranteed by MISC.

RATINGS RATIONALE

The rating action follows the company's decision to sell a 50% stake in its Gumusut - Kakap semi-floating production system to a wholly owned subsidiary of Petroliam Nasional Berhad (Petronas, A1/stable).

Petronas is the Malaysian government-owned oil company and also the parent of MISC.

The transaction will result in proceeds of USD1.7 billion out of which MISC will use USD1.25 billion to prepay its borrowings and the balance will be used to fund capital expenditure and transaction expenses.

"The repayment of debt will help improve MISC's credit metrics, such that operating lease adjusted debt/EBITDA for 2012 and 2013 will be well within our tolerance level of 6.0x for its ratings. The receipt of the proceeds will also lead to a significant improvement in MISC's liquidity profile," says Vikas Halan, a Moody's Vice President and Senior Analyst.

"The decision by MISC to reduce its borrowings reflects its commitment to restoring its financial profile, which has suffered from a prolonged downturn in the shipping sector," says Halan.

"Although our outlook for the sector remains negative, and we believe that MISC will continue to face challenges at least until 2014, the transaction will place it on more solid ground to weather these challenges within its current rating," says Halan.

"The transaction also reinforces our expectation of extraordinary support from its parent Petronas, which results in a three-notch uplift of MISC's issuer ratings from its stand-alone rating of ba2," says Halan.

"In addition to lowering its debt, MISC has already announced an exit from its loss-making liner business, which will result in improvements in its EBITDA for 2012 and beyond,". adds Halan.

The expected improvement in EBITDA will, however, be constrained by declining charter rates for the company's tankers and weak performance in its heavy engineering segment. For July-September 2012, MISC reported a 26% decline in EBITDA, which was mainly attributable to a one time provision of higher than expected expenses on one project in its heavy engineering segment and forex losses.

MISC's Baa2 ratings continue to reflect both the strong support provided by its parent Petronas and its standalone rating of ba2. They also reflect (1) the company's ability to secure vessel contracts by aligning its business development with Petronas; (2) the diversified nature of its fleet and its leading market position in LNG transportation, which provides stable income; and (3) the term contracts that provide over half of its revenue from its shipping businesses and that offer some protection against the cyclicality in freight rates.

However, these strengths are counter-balanced by (1) excess global capacity in the petroleum and chemical transportation sectors, which could pressure the company's freight rates and profit margins; and (2) reduced, although still relatively high financial leverage.

Downward pressure on the rating could build if MISC decides to embark on new business expansion that results in substantial negative free cash flows and higher debt. Credit metrics indicative of increasing stress on the rating would include operating lease adjusted debt/EBITDA above 6.0x and EBIT/Interest below 1.5x, both on a sustained basis.

Upward pressure on the ratings in the near term is unlikely, given the weak fundamentals of the shipping industry. Upward pressure may arise if charter rates and MISC's profitability increase over time, such that operating lease adjusted debt/EBITDA falls well below 5.0x and EBIT/Interest remains above 2.5x, both on a sustained basis.

The principal methodology used in rating MISC was the Global Shipping Industry Methodology published in December 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

MISC Berhad ("MISC") was established in 1968 as a liner company and was listed on the Kuala Lumpur Stock Exchange in 1987. In 1998, it became a subsidiary of Petroliam Nasional Berhad ("Petronas"). It provides Petronas with logistics solutions and is its exclusive transporter of liquefied natural gas.

REGULATORY DISCLOSURES

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Vikas Halan Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service Singapore Pte. Ltd.50 Raffles Place #23-06 Singapore Land TowerSingapore 48623 Singapore JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 Philipp L. Lotter MD - Corporate Finance Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 Releasing Office: Moody's Investors Service Singapore Pte. Ltd.50 Raffles Place #23-06 Singapore Land TowerSingapore 48623 Singapore JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (65) 6398-8308 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY'S OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND MOODY'S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY'S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY'S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY'S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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All information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided "AS IS" without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error negligent or otherwise or other circumstance or contingency within or outside the control of MOODY'S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER.

MIS, a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Shareholder Relations -- Corporate Governance -- Director and Shareholder Affiliation Policy."

Any publication into Australia of this document is by MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657, which holds Australian Financial Services License no. 336969. This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001.

Notwithstanding the foregoing, credit ratings assigned on and after October 1, 2010 by Moody's Japan K.K. ("MJKK") are MJKK's current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. In such a case, "MIS" in the foregoing statements shall be deemed to be replaced with "MJKK". MJKK is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO.

This credit rating is an opinion as to the creditworthiness or a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be dangerous for retail investors to make any investment decision based on this credit rating. If in doubt you should contact your financial or other professional adviser.

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