Moody’s assigns A3 foreign currency issuer rating to Petronas LNG

Moody’s Investors Service said it has assigned an A3 foreign currency issuer rating to Petronas LNG Ltd (PLL), a trading company owned by Malaysian energy giant Petronas.

Moody’s has also affirmed Petronas LNG’s A3 local currency issuer rating, the rating agency said on Wednesday.

“PLL’s A3 foreign and local currency issuer ratings are positioned two notches below its ultimate parent, Petronas’ A1 issuer 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 sovereign (A3 stable),” says Vikas Halan, a Moody’s Vice President and Senior Credit Officer.

According to Moody’s, 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 benefits from an additional corporate guarantee facility provided by Petronas for PLL’s long-term off-take commitment in relation to the Gladstone LNG liquefaction project in Australia, which became operational in October 2015.

“A strong indicator of Petronas’ financial support was an equity injection of $130 million in combination with no dividend payments to the parent in 2015, in order to fund the cash flow shortfall in this year on the back of declined LNG prices,” adds Halan.

PLL has exclusive rights to market and trade all of Petronas’ international LNG portfolio, including the Australia’s Gladstone LNG liquefaction project, Floating LNG projects 1&2, and the Pacific Northwest LNG project in Canada, which are typically long-term in nature and are expected to contribute to a more balanced spot/long-term trade ratio of PLL, Moody’s said.

In addition, PLL’s operating scale will increase, once these LNG projects achieve full export capacity.

“However, PLL’s A3 foreign and local currency ratings are constrained by the company’s earnings and cash flow volatility from spot trading, demonstrated by an incurred loss of more than $250 million in 2015. Such volatility is amplified by the small scale of PLL’s trading book, making the company also susceptible to significant losses from non-performance risk.”

In terms of logistics-related risks, PLL has reduced its exposure to such risks through long-term charters from its sister company, MISC Berhad, Moody’s said.

“The rating outlook is stable, reflecting our expectation of continued strong support and linkages with its ultimate parent Petronas, and its strategic importance to Petronas’ LNG business,” the rating agency said.

“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, and suppressed environment for LNG trading. Moody’s will consider an upgrade if Petronas’ rating is upgraded,” Moody’s added.

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