Moody’s Assigns A3 Rating to Petronas LNG (Malaysia)
Moody’s Investors Service assigned a first-time A3 issuer rating to PETRONAS LNG Limited (PLL). The outlook on the rating is stable.
“PLL’s A3 issuer rating is positioned two notches below its ultimate parent, Petroliam Nasional Berhad’s (PETRONAS) A1 rating. This top down approach reflects PLL’s full ownership by, and strong operational and financial integration with PETRONAS, which in turn is Malaysia’s national oil company and is wholly owned by the Malaysian government (A3 stable),” says Simon Wong, a Moody’s Vice President and Senior Credit Officer.
PETRONAS’ strong support is evident from its willingness to provide corporate guarantees to PLL’s counterparties for long-term facility purchases of LNG.
“PLL also enjoys ongoing liquidity support from PETRONAS, including an available $450 million from PETRONAS’ umbrella credit facility and intercompany loan ,” adds Wong, who is also Lead Analyst for PLL and PETRONAS.
Moreover, PLL has exclusive rights to market and trade all of PETRONAS’ international LNG portfolio, including the Australia Gladstone LNG liquefaction project, Floating LNG projects 1 & 2, and the Pacific Northwest LNG project in Canada, which are all on 20-year terms. PLL’s operating scale is expected to increase when these LNG projects achieve full export capacity.
“However, PLL’s A3 rating also recognizes the company’s earnings and cash flow volatility from spot trading. Such volatility is amplified by the small scale of PLL’s trading book. Nevertheless, we draw comfort from PLL’s conservative risk management and trading policies, as well as the tight supervision of PLL by PETRONAS,” says Wong.
The rating outlook is stable, reflecting expectation of continued strong support and linkages with its ultimate parent PETRONAS, and its strategic importance to PETRONAS’ LNG business.
Upward pressure on PLL’s rating in the next 12-18 months is unlikely because of the strong ratings linkages to that of its ultimate parent, PETRONAS. Moody’s will consider an upgrade if PETRONAS’ rating is upgraded.
Downward rating pressure may emerge if: there is any reduction in PETRONAS’ supervision of and operational and financial support to PLL; there is any decrease in PETRONAS’ ownership of PLL; PETRONAS’ issuer rating is downgraded; or there is a material increase in PLL’s risk appetite.
PLL’s rating was assigned using a top down approach by evaluating the company’s full ownership by PETRONAS, its strong operational and financial integration with PETRONAS, and the willingness and ability of PETRONAS to extend support to PLL in an event of distress.
PLL’s ratings were assigned by evaluating factors that Moody’s considers relevant to the credit profile of the issuer, such as the company’s business risk and competitive position compared with others within the industry; capital structure and financial risk; projected performance over the near to intermediate term; and management’s track record and tolerance for risk. Moody’s compared these attributes against other issuers both within and outside PLL’s core industry and believes PLL’s ratings are comparable to those of other issuers with similar credit risk.
LNG World News Staff, September 24, 2013