Rumours & Speculation - MISC

Petronas’s CEO say that its decision to build its own LNG fleet is not a move to make a second attempt at taking MISC private.

There will not be another attempt to privatize MISC.

It is defending Petronas’s decision to own LNG tankers in a reaction to Petronas’ failed attempt to take MISC private at rm5.50 per share.

Nevertheless critics say MISC’s earnings will be adversely affected because its LNG tanker charter division is its bread and butter and Petronas is its main client. The shipping group will not be able to tap Petronas’s future transport needs as the latter grows its LNG business.

Accordingly, the charter rate of LNG tankers is about US$80000 a day. If the management fee is based on a percentage of the charter rate, the revenue earned from being a manager will be much less.

However its CEO stressed that Petronas’ move will help ease the strain on MISC’s financials as the shipping giant need not acquire new LNG tankers.

Given the current (Oct 2013) health of MISC’s balance sheet and possibly high borrowing cost, the shipping subsidiary does not have the financial muscle to expand its fleet to cope with Petronas’ growing demand.

As at June 30 2013, MISC had a cash balance of rm3.41 billion and total borrowings of rm9.2 billion, including short term debt of rm2.86 billion. Estimate the group’s gearing for FY2013 ending Dec 31 2 at 30% to 40%.

Petronas has the resources to buy LNG tankers for its own needs but Petronas does not have the expertise whereas MISC does have.