KUALA LUMPUR, March 29 — Moody’s Investors Service has assigned a provisional (P)Baa2 senior unsecured rating to the US$3 billion (RM12.6 billion) global medium-term note (MTN) programme established by MISC Capital Two (Labuan) Ltd, a wholly-owned subsidiary of MISC Bhd.

The rating agency said it has also assigned a Baa2 senior unsecured rating to the proposed drawdown under MISC Capital Two (Labuan) Ltd’s MTN programme.

"We expect MISC to use the proceeds from the proposed drawdown to refinance existing secured debt,” it said in a statement today.  The outlook on the ratings is stable, it said.

The agency’s assistant vice-president and analyst Stephanie Cheong said the senior unsecured notes are rated at the same level as MISC’s Baa2 issuer rating.

"This reflects our expectation that financial support from its parent Petroliam Nasional Bhd (Petronas) will be provided to the holding company rather than directly to its operating subsidiaries, thereby mitigating any differences in the expected loss that could result from structural subordination,” she said.

MISC, which is a 51.0 per cent-owned subsidiary of Petronas, has a complex capital structure with secured and unsecured debt at subsidiaries being used to finance ship construction costs.

"We also take into account that the majority of the company’s ships are unencumbered with a value that significantly exceeds the proposed MTN drawdown.

"Moreover, the rating also reflects the company’s intention to continue to refinance existing debt or fund future projects on an unsecured basis, which will support a steady reduction in secured debt as a share of total debt from the current level of 58 per cent,” the rating agency said.

Moody’s noted that the Baa2 issuer rating reflects MISC’s diversified fleet, leading market position in liquefied natural gas (LNG) transportation, and exposure to long-term charters, which provide good earnings visibility.

At the same time, the rating is constrained by MISC’s substantial debt-funded capital spending, which will result in negative free cash flow (FCF) and high leverage over the next two years.

"We expect MISC’s leverage, after peaking at 4.6 times in 2023, to recover to 4 times in 2024, reflecting either the partial divestment of Mero-3 when construction completes or higher cash flow generation when Mero-3 begins operations,” it said, referring to the company’s floating production storage and offloading (FPSO) vessel project in Brazil.

Moody’s added that the stable outlook reflects its expectation that MISC will effectively execute its growth plans while continuing to adhere to prudent financial policies, maintaining a sound financial profile and excellent liquidity through the oil and gas shipping cycle. — Bernama