MISC Bhd. Outlook Revised To Stable On Expected Deleveraging Through Asset Sale; 'BBB' Rating Affirmed

Stocks and Financial Services Press Releases Tuesday October 9, 2012 16:10
SINGAPORE--9 Oct--Standard & Poor's
  • MISC, a Malaysia-based shipping company, has hived off a semi-floating production system to a separate company.
  • It plans to sell 50% stake in the new company to E&P Venture, a subsidiary of its parent PETRONAS. We expect MISC to receive necessary approvals and complete the proposed transaction by the end of this year.
  • We are revising the outlook to stable because we anticipate that debt repayment from the asset-sale proceeds will improve MISC's financial strength and support the company's liquidity.
  • We are also affirming our 'BBB' long-term corporate credit rating on MISC and the 'BBB' issue rating on senior unsecured notes the company guarantees.

SINGAPORE (Standard & Poor's) Oct. 9, 2012--Standard & Poor's Ratings Services said today that it had revised the outlook on Malaysia-based shipping company MISC Bhd. to stable from negative. At the same time, Standard & Poor's affirmed its 'BBB' long-term corporate credit rating on the company. We also affirmed our 'BBB' issue rating on the US$700 million 6.125% senior unsecured notes due July 1, 2014, that MISC Capital (L) Ltd. issued. MISC fully guarantees the notes.

"We revised the outlook on MISC because we expect the company to use the proceeds from a proposed asset sale to reduce leverage," said Standard & Poor's credit analyst Abhishek Dangra. "We believe execution risk in the transaction is minimal due to the related-party nature of the deal."

MISC hived off its yet-to-be operational semi-floating production system (SFPS) to Gumusut-Kakap Semi-Floating Production System (L) Ltd. (GKL), a wholly owned subsidiary. It proposes to sell its 50% equity stake in GKL to E&P Venture Solutions Co. Sdn. Bhd., an indirect subsidiary of MISC's 62.7% owner Petroliam Nasional Bhd. (PETRONAS; foreign currency A-/Stable/--; local currency A/Stable/--; axAAA/--). The MISC board has approved the proposed stake sale.

"We believe US$1.73 billion cash inflows from the planned asset sale will significantly improve MISC's financial strength, reduce refinancing risks, and ease pressure on its liquidity," said Mr. Dangra. "The company plans to use US$1.25 billion of the sale proceeds to repay debt and US$481 million to meet capital expenditure needs."

We forecast MISC's ratio of net operating lease adjusted (OLA) debt to EBITDA to be below 4.5x in 2013, against our earlier estimate of 6x. We estimate the company's ratio of funds from operations to debt at about 18% against our earlier estimate of 12%, for the same period. This is based on the assumption that MISC will receive necessary approvals to complete the proposed transaction before the end of this year.

MISC expects the SFPS to be delivered to the charterer by mid-2013. It estimates that GKL's cash flows will be sufficient to repay GKL's debt.

The rating on MISC reflects the business and financial support the company receives from PETRONAS. We assess MISC's stand-alone credit profile to be 'bb'. We assess MISC's liquidity as "adequate," as defined in our criteria, after factoring in support from PETRONAS.

"The stable outlook reflects our view that MISC will maintain a ratio of net OLA adjusted debt to EBITDA of below 5x on a sustained basis while maintaining a satisfactory business risk profile," said Mr. Dangra. This is despite the severe downturn in the cyclical shipping industry.


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