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Moody’s downgrades MISC’s rating to A3; outlook stable

Hong Kong, June 04, 2009 -- Moody's Investors Service has downgraded MISC 
Berhad's ("MISC") issuer and senior unsecured debt ratings to A3 from A2. 
At the same time, Moody's has changed the outlook of both ratings to 
stable from negative.

"The downgrade has been driven by the company's weaker-than-expected
performance -- which includes lower profit margins and a higher debt
level -- in FY2009 (ending in March 2009) against the backdrop of weak 
shipping markets," says Peter Choy, a Moody's Vice President and Senior 
Credit Officer, adding "In particular, the huge loss in its liner 
business was the main contributor to the unfavourable result."

"Moody's expects MISC will remain exposed to the challenging conditions 
in the liner, chemical and petroleum transportation markets for the next 
two years," says Choy.

"In addition, MISC's liquidity position will be under pressure from a 
sizeable order placed by the company for tankers and a business target of 
increasing investments in offshore production facilities, and which both 
entail large capital spending over the next two years" says Choy.

"As a result, MISC's key financial metrics had exceeded the tolerance 
level set for the previous A2 rating," adds Choy.

Furthermore, its A3 rating reflects a combination of the strong support 
from its parent, Petronas (A1/Stable), and its standalone rating of Baa3.

MISC's fundamental rating of Baa3 reflects (a) its ability to secure 
vessel employment through aligning its business development with that of 
its parent; (b) the diversified nature of its fleet and a leading market
position in LNG transportation that provides stable income; (c) the fact 
that more than 50% of its revenue are protected by term contracts against 
the cyclicality in freight rates; and (d) its good management track 

However, these strengths are counter-balanced by: (1) increased capacity 
in the liner, petroleum and chemical transportation sectors, which could 
add pressure to the company's freight rates and profit margins; and (2) 
substantial capital expenditures requiring additional debt funding, which 
will result in higher debt leverage and negative cash flow during coming 

The stable outlook is based on Moody's expectation that (1) MISC's
management will take active measures to reduce the losses in its liner
and chemical segments, (2) it will continue to have good access to the 
banking and capital markets to fund its committed capital expenditures,
and (3) it will take actions to comply with the financial covenants in
its borrowings.

Downward rating pressure may emerge if: (a) MISC's financial profile
shows consistent deterioration due to further pressure on its profit 
margins, arising from protracted weak shipping market conditions; and/or 
(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/EBITDA exceeding 5x -- 5.5x; or 
EBIT interest coverage falling consistently below 2.0x - 2.5x in the 
medium term; (c) changes in the relationship between Petronas and MISC -- 
including, but not limited to, the reduction of Petronas' ownership and
business sponsorship -- weaken support for MISC; or (d) Petronas' own 
rating is downgraded.

Upward rating pressure is unlikely in the next 12 to 18 months, given the 
challenging conditions in the shipping markets and the loss-making
evident in MISC's liner segment.

The last rating action was on 27 February 2009 when the MISC's rating
outlook was changed to negative from stable.

The principal methodology used in rating MISC was the Global Shipping
Methodology, which can be found at www.moodys.com in the Credit Policy & 
Methodologies directory, in the Ratings Methodologies subdirectory. Other 
methodologies and factors that may have been considered in the process of 
rating MISC can also be found in the Credit Policy & Methodologies 

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, 
the state-owned energy company, in 1998.

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