MARC AFFIRMS ITS AAAID RATING ON GAS MALAYSIA'S ISLAMIC DEBT PROGRAMME

MARC affirms its rating on Gas Malaysia Berhad's (Gas Malaysia) RM500 million Al-Murabahah Medium Term Notes (MTN) Programme at AAAID with a stable outlook. Currently, there are no outstanding notes issued under the programme.

The affirmed rating reflects Gas Malaysia's satisfactory business risk profile owing to its strong market position as the sole natural gas distributor in Peninsular Malaysia, a major operator of the liquefied petroleum gas (LPG) system and its debt-free financial position. On February 24, 2012, it was announced that Petroliam Nasional Berhad has signed the new gas supply agreement with Gas Malaysia, which extends supply for another ten years with an option for a further five years effective from the expiry of the current contract on December 31, 2012. The new agreement also increases the supply of gas to 492 million standard cubic feet per day (mmscfd) from the current 382 mmscfd, which MARC believes will allow the company to expand its pipeline more rapidly. The agency notes that during the financial year ended December 31, 2011 (FY2011), Gas Malaysia constructed 18.3 km of pipeline, expanded its constructed pipeline network to 1,720.6 km (FY2010: by 100.8 km to 1,702.3 km).

Gas Malaysia, owned by MMC Corporation Berhad-Shapadu Corporation Sdn Bhd (55%), Tokyo Gas-Mitsui Consortium (25%), Petronas Gas Berhad (20%) and one special share held by Petronas, is involved in the selling, marketing and distribution of natural gas and reticulated liquefied petroleum gas for Peninsular Malaysia licensed by the Energy Commission. Gas Malaysia has announced plans for an initial public offering (IPO) on the main market of Bursa Malaysia of 26% of its existing issued share capital. Under the plan, existing shareholders will reduce their holdings in Gas Malaysia to 40.7%, 18.5% and 14.8% respectively. MARC views that the change in Gas Malaysia's ownership structure should, apart from providing access to the capital market, bring about improvements in corporate governance and transparency.

Revenue for FY 2011 increased to RM2.0 billion (FY2010: RM1.81 billion), while pre-tax profit declined to RM294.7 million (FY2010: RM388.4 million). The decline in profitability was due to tariff adjustment in June 2011 which narrowed the spread between the buying and selling price of natural gas to RM2.02 per million British thermal unit (MMBtu) from RM3.95 MMBtu previously, bringing operating cash flow lower to RM261.7 million (FY2010: RM369.4 million). The company has been debt-free since FY2009. MARC understands that no major capital expenditure is planned in the near term, and Gas Malaysia will distribute all its after-tax profits as dividends in FY2012 and proposes to adopt a 75% dividend pay-out policy thereafter.

The stability of this rating will depend on Gas Malaysia's maintenance of its operational and financial strength, a key driver of which will be developments pertaining to its gas supply arrangements.

Contacts: Goh Shu Yuan +603-2082 2268 / shuyuan@marc.com.my; Francis Xaviour Joe +603-2082 2279/ fxjoe@marc.com.my.