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Announcement:

Moody's affirms MISC Berhad's A3 ratings; outlook stable

Global Credit Research - 25 May 2010

Approximately US$700 million of debts affected

Hong Kong, May 25, 2010 -- Moody's Investors Service has today affirmed MISC Berhad's ("MISC") issuer and senior unsecured debt ratings of A3. The outlook on all ratings remains stable.

This affirmation follows MISC's announcement that it is entering into an agreement to acquire 50% interest in VTTI BV ("VTTI"), a petroleum products tank terminal operator with a combined capacity of about 6 million cubic meters spread over 11 countries.

"MISC will be able to fund the approximately USD735m acquisition with cash on hand, of which it had USD2.4bn as of March 2010," says Peter Choy, a Moody's Vice President and Senior Credit Officer.

"Furthermore, VTTI is currently free of external debts, while any future borrowings by VTTI for expansion will be unlikely to materially increase MISC's debt leverage," says Choy.

"While MISC's FY March 2010 results were weaker than expected, Moody's expects it to improve in line with the gradual improvement in market conditions, rationalization of the company's liner operations and delivery of new offshore production units and tankers," says Choy, adding, "MISC's post acquisition credit metrics of Adjusted Debt/EBITDA of around 5.4x -- 4.9x and EBIT/Interest of around 2.3X -- 2.8x still support its current ratings."

The acquisition of VTTI is also in line with MISC's strategy to expand its energy logistics service and increase its term contract income to buffer against volatile shipping income.

MISC's A3 ratings continue to reflect a combination of the strong support from its parent, Petronas (A1/Negative), and its stand-alone rating of Baa3.

MISC's fundamental rating of Baa3 reflects (a) its ability to secure employment of vessels through aligning its business development with that of its parent, Petronas; (b) the diversified nature of its fleet and leading market position in liquefied natural gas ("LNG") transportation which provides it with stable income; (c) the fact that about half of its revenue is derived from term contracts which protects it against cyclical freight rates; and (d) its good management track record.

However, these strengths are counter-balanced by its continued requirement for funds for its expansion and by its loss-making liner and chemical segments.

The stable outlook is based on Moody's expectation that (1) management will actively reduce losses in its liner and chemical segments; (2) the company will continue to enjoy good access to domestic banking and capital markets to fund its committed capital expenditure.

Upward pressure could emerge if MISC reduces losses in its liner business, improves the profitability of its tanker fleet, and completes its offshore production facilities within budget and on time.

Moody's would consider the following metrics as evidence of upward rating pressure: improved credit metrics of adjusted Debt/EBITDAR not exceeding 2.5x -- 3.0x and EBIT/Interest exceeding 4 -- 4.5x.

Downward rating pressure may emerge if: (a) MISC's financial profile consistently deteriorates due to further pressure on its profit margins arising from protracted weak shipping market conditions; (b) there are further debt-funded capital outlays beyond those currently committed such that its credit metrics weaken, as evidenced by sustained negative free cash flow, Debt/EBITDAR exceeding 5x - 5.5x, and/or EBIT interest coverage falling consistently below 2.0x - 2.5x in the medium term; and/or (c) weakening support for MISC due to changes in the relationship between Petronas and MISC, including, but not limited to, the reduction of Petronas' ownership and business sponsorship.

The last rating action with regard to MISC was taken on 24 November 2009 when its issuer and debt ratings of A3 with a stable outlook were affirmed following its announcement that it proposed to raise RM 5.2 billion through renounceable rights issue.

The principal methodology used in rating MISC was Moody's Rating Methodology on "Global Shipping Industry," published in December 2009, and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab.

Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's web site.

MISC was established in 1968 as a liner company and listed on the Kuala Lumpur Stock Exchange in 1987. Since then it has refocused its business from liners to energy transportation, becoming a subsidiary of Petronas in 1998.

Hong Kong
Peter Choy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077

Singapore
Philipp L. Lotter
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308

Moody's affirms MISC Berhad's A3 ratings; outlook stable
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