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KDN NO: PP9914/10/2012(030812) CD 72383 XX

CREDIT ANALYSIS CREDIT ANALYSIS

MALAYSIAN RATING CORPORATION BERHAD


(Company No.: 364803 V)

GAS MALAYSIA BERHAD


Rating Review - 2011
Date April 2012 Rating History August 2010 December 2009 December 2008 December 2007 December 2006 Issues Tenure Lead Arrangers Rating Action Affirmed Rating Action Affirmed Affirmed Affirmed Upgraded Assigned Current Rating AAAID Rating AAAID AAAID AAAID AAAID AA+ID Outlook Stable Outlook Stable Stable Stable Stable Stable

Al-Murabahah Medium Term Notes Programme of RM500.0 million 10 years Bank Muamalat Malaysia Berhad Maybank Investment Bank Berhad HSBC Bank Malaysia Berhad Bank Muamalat Malaysia Berhad May 19, 2006 Mayban Trustees Berhad Goh Shu Yuan Francis Xaviour Joe (603) 2082 2200 shuyuan@marc.com.my fxjoe@marc.com.my

Facility Agent Issue Date Trustee Contact Analysts

Corporate Debt

Oil and Gas

Publication Date: April 20, 2012

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Note: This credit analysis report is in relation to the press announcement made on April 6, 2012.

MALAYSIAN RATING CORPORATION BERHAD

CREDIT ANALYSIS
CORPORATE DEBT / OIL AND GAS
Rating Review - 2011

GAS MALAYSIA BERHAD


Major Rating Factors Strengths Sole natural gas distributor in Peninsular Malaysia for small to medium-sized industrial users; Shareholders with strong financial and technical background; and Strong balance sheet with zero borrowings. Challenges/Risks Profit margin dependent on regulated tariff adjustments. Rationale MARC affirms its rating on Gas Malaysia Berhads (Gas Malaysia) RM500 million AlMurabahah 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 Malaysias 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 GasMitsui 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 Malaysias 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

Gas Malaysia Berhad

MARC Analysis

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 Malaysias maintenance of its operational and financial strength, a key driver of which will be developments pertaining to its gas supply arrangements.
Exhibit 1: Financial highlights FYE 31 Dec Revenue (RM Mil) Pre-tax profit (RM Mil) Operating profit margin (%) OPBITDA return on assets (%) Debt to equity (x) Shareholders funds (RM Mil)

2011 2,000.2 294.7 14.3 21.34 0.00 1,009.4

2010 1,807.5 388.4 21.1 27.7 0.00 1,167.6

2009 1,753.1 325.9 18.3 25.4 0.00 1,042.5

2008 1,879.6 356.5 18.8 30.2 0.00 987.1

2007 1,388.9 292.9 21.5 50.4 0.08 816.2

Gas Malaysia Berhad

MARC Analysis

BUSINESS DESCRIPTION Background Gas Malaysia Sdn Bhd, which changed its name to Gas Malaysia Berhad (Gas Malaysia) on August 19, 2011, was established in May 1992 to sell, market and distribute natural gas as well as construct and operate the Natural Gas Distribution System (NGDS) for Peninsular Malaysia. Gas Malaysia is the only company licensed under the Gas Supply Agreement (GSA) by the Energy Commission, with the approval of the Ministry to supply and sell reticulated natural gas in Peninsular Malaysia. The company was also granted an additional licence in December 15, 2000 by the Energy Commission to supply and sell reticulated liquefied petroleum gas (LPG) for a period of 20 years to December 15, 2020. With the second licence, Gas Malaysia was able to expand its customer base to include industrial, commercial and residential users in Peninsular Malaysia, which helps it to serve locations outside the coverage of the NGDS. Gas Malaysia is a joint venture between MMC Corporation Berhad-Shapadu Corporation Sdn Bhd Consortium (MMCS), Tokyo Gas-Mitsui Consortium (TGMC) and Petronas Gas, each owning 55%, 25% and 20% equity interest in the company respectively. Petroliam Nasional Berhad (Petronas) holds one special share in the company which grants Petronas certain special rights such as a requirement for prior consent for any alteration to the companys articles of association and entitlement to receive notice to attend and speak at all general meetings, amongst others. Headquartered in Shah Alam, Selangor, Gas Malaysia has three regional offices in Prai (Penang), Gebeng (Pahang) and Pasir Gudang (Johor) as well as seven branch offices spread across Peninsular Malaysia. Recent Major Corporate Development

Listing on Bursa Malaysia


Gas Malaysia has announced plans to list its shares on the main market of Bursa Malaysia in 2012. A total of 333.84 million shares, representing 26% of paid-up capital, will be offered to institutional and retail investors, with the proceeds going to the shareholders. Upon the listing of the company, the shareholding of three major shareholders will be reduced to 40.7%, 18.5% and 14.8% respectively.

Cancellation of RM200 million CP/MTN programme


On September 29, 2011, MARC withdrew its MARC-1ID /AAAID ratings on Gas Malaysias RM200 million AlMurabahah Commercial Papers/Medium term Notes (CP/MTN) programme following the expiry of the programme. At the point of cancellation of the programme, there were no outstanding notes in issuance.

Gas Malaysia Berhad

MARC Analysis

INDUSTRY RISK ANALYSIS Regulatory framework The industry is regulated by the Economic Planning Unit via the Energy Commission. Gas Malaysia is granted the right to construct and maintain pipelines for the supply of natural gas. Pursuant to the Gas Supply Act 1993 and Gas Supply Regulations 1997, all fuel prices and tariff-setting mechanisms are also regulated.
Exhibit 2: Regulatory framework

* Ministry of Energy, Green Technology and Water is formerly known as Ministry of Energy, Communications & Multimedia

Demand underpinned by economic growth Natural gas is one of the fastest growing components of the world primary energy consumption mix1. In Malaysia, demand for natural gas is mainly driven by the power and industrial sectors. The manufacturing sector, a key consumer of gas, grew at a faster pace at 11.4%, compared to the overall economy which grew at 7.2% in 2010. The Malaysian economy has continued to grow, with 2011 GDP growth at 5.2%. At the global level, it is estimated that consumption of natural gas will grow at an average of 1.6% p.a. until 20352. According to the Energy Information Administration (EIA), the global demand for natural gas reached 113.1 trillion cubic feet in 2010, after gas consumption declined by 4% the previous year due to the global recession in 2008 and 2009. Gas imports to support growing local demand Malaysians natural gas production started in 1973 and has grown at a compounded annual growth rate (CAGR) of 20% to approximately 2.2 trillion cubic feet in 2010, placing Malaysia among the top 15 global producers of natural gas. The high production levels were helped by bringing new fields onstream. With the new Serampang gas field, the total number of natural gas production fields now stands at 44. Malaysia is a net exporter of natural gas and is one of the largest exporters of liquefied natural gas (LNG) in the world with nearly all of the natural gas produced in East Malaysia exported as LNG to countries such as Japan and Korea. As demand exceeds supply, Petronas will be importing natural gas, and to this end is commissioning a LNG re-gasification terminal in Malacca with a maximum capacity of 500 million standard cubic feet per day (mmscfd). The terminal is expected to be completed by the end of June 2012. This is expected to increase supply which was previously constrained by lack of new supply capacity in Malaysia. However, MARC opines that industrial users would now need to pay market prices for this new source as previously gas supply prices were subsidised through the governments regulated pricing structure.

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Gas Industry 2010 by Malaysia Gas Association (MGA) International Energy Outlook 2011 by Energy Information Administration (EIA)

Gas Malaysia Berhad

MARC Analysis

BUSINESS RISK ANALYSIS Government signals move to market pricing for natural gas The pricing structure of natural gas supplied by Petronas is based on a discounted market price of medium fuel oil (MFO). The government has indicated that they intend to adopt market prices in the long run with gas prices to be revised upward annually. In August 2008, Petronas increased the buying price of natural gas to Gas Malaysia from RM9.40 per million British thermal units (mmbtu) to RM17.99 per mmbtu, with Gas Malaysia in turn increasing the average selling prices to its customers to RM22.06 per mmbtu from RM12.87 per mmbtu previously. These adjustments allowed the company to achieve a higher average margin of RM4.07 compared to RM3.47 per mmbtu previously. In March 2009, the government revised downwards the pricing following a decline in global oil prices, which plummeted by more than 50% to US$40 US$50 per barrel from its peak of US$147 per barrel in July 2008. In the most recent price adjustment, the government allowed the buying price to be increased to RM14.05 per mmbtu while the average selling price was also increased to RM16.07 per mmbtu. With the new average selling price being still lower than prices in 2008, Gas Malaysias average margin is at the lowest level since 2002 at RM2.02 per mmbtu. The ability of the company to pass through a cost increase in the supply of gas is limited due to its need to comply with the Gas Supply Act 1993.
Exhibit 3: Gas pricing structure (RM per mmbtu) Oct 2002 to Jul 2008 Buying Price 9.40 Average Selling Price 12.87 Average Margin 3.47
Source: Gas Malaysia

Aug 2008 to Feb 2009 17.99 22.06 4.07

Mar 2009 to May 2011 11.05 15.00 3.95

Jun 2011 to Dec 2011 14.05 16.07 2.02

Gas Malaysias natural gas tariff rates for industrial, commercial and residential customers are set out in the following table:
Exhibit 4: Gas tariffs (RM per mmbtu) Mar 2009 to May 2010 (RM/mmbtu) 18.22 19.23 13.04 13.63 15.00 15.00 15.35 Jun 2010 to Dec 2010 (RM/mmbtu) 19.52 20.61 13.98 14.61 16.07 16.07 16.45 January 2011 to Dec 2011 (RM/mmbtu) 19.52 20.61 13.98 14.61 16.07 16.07 16.45 Applicable Range (mmbtu/year) n.a 0-600 601-5,000 5,001-50,000 50,001-200,000 200,001-750,000 Above 750,000

Source: Gas Malaysia

Residential Tariff (A) Retail Commercial Tariff (B) Small Commercial & Industrial Tariff (C) Small Commercial & Industrial Tariff (D) Large Commercial & Industrial Tariff (E) Large Commercial & Industrial Tariff (F) Large Commercial & Industrial Tariff (L)

On May 30, 2011, the Ministry of Energy, Green Technology and Water announced that the natural gas purchasing price of Gas Malaysia will be increased by RM3.00 per mmbtu every six months from June 2011 to December 2015 with average margins regulated and fixed between RM2.02 to RM2.25 per mmbtu. MARC views that in a regulated pricing environment, the company is constrained by government policy issues of balancing the wider national interests and private interests. New gas supply agreement eliminates contract renewal risk On February 24, 2012, Petronas signed a new Gas Supply Agreement (GSA) with Gas Malaysia that alleviates concerns over availability of secured supply as the current GSA expires in December 31, 2012. The new agreement is for 10 years with an option for a further five years and also increases gas supply to 492 mmscfd from the current 382 mmscfd. As at December 31, 2011, Gas Malaysia has established its gas network across Peninsular Malaysia, particularly in key industrial areas such as Shah Alam, Prai, Senawang, Bangi, Kamunting and Pasir Gudang with customer coverage of 33,700 residential and commercial customers and 704 industrial customers.

Gas Malaysia Berhad

MARC Analysis

Exhibit 5: Summary of gas supply volume from Petronas Period Volume (mmscfd) 2003 October 31, 2009 150 November 1, 2009 November 30, 2009 300 December 1, 2009 December 31, 2012 382 January 1, 2013 December 31, 2023* 492
*with an option to extend for another five years

Demand driven by economic conditions


Exhibit 6: Gas Malaysia natural gas sales volume

Source: Gas Malaysia

Natural gas is expected to remain the cheapest fuel source with the current pricing mechanism compared to alternative fuels such as MFO and diesel. The ease of switching to cheaper fuel sources in the immediate term is limited due to costs sunk into customisation of equipment to run on natural gas. Industrial customers remain the biggest market for Gas Malaysia, accounting for over 99% of total sales. Profile of customers
Exhibit 7: Sales volume by industry (%) Type of Industry 2011 Food and Beverages 27 Rubber 24 Non-metallic Minerals 10 Fabricated & Basic Metal 13 Glass 7 Chemicals 8 Others 11 Total 100
Source: Gas Malaysia

FY2010 27 24 10 12 7 8 12 100

FY2009 27 23 10 12 7 8 13 100

FY2008 27 19 12 11 9 9 13 100

FY2007 27 19 12 11 9 9 13 100

For industrial users, natural gas is primarily used for heating, chilling, appliance operation and cogeneration. Gas Malaysia supplies a wide spectrum of industrial customers; Food & beverages and rubber industries constitute almost half of total sales volume. In terms of revenue, its top five customers are Nippon Electric Glass (M) Sdn Bhd, Malaysian Sheet Glass Berhad, Fatty Chemicals Sdn Bhd, Recron (M) Sdn Bhd and Malayan Sugar Manufacturing Co Bhd. However, these clients make up only 10% of total revenue, which helps minimise customer concentration risk. MARC also notes no one customer contributes more than 3% of sales. The contract between Gas Malaysia and its customers is governed by a GSA and is usually for a period of five years. The GSA requires customers to specify the quantity required annually, which needs to be furnished to Gas Malaysia two months prior to the commencement of each contract year. Although Gas Malaysia benefits in terms of planning by knowing the quantity of gas required per year, actual demand is subject to overall economic conditions as there are no contractual take-or-pay provisions. Notwithstanding above, the agency notes that Gas Malaysia has a captive market for industrial users as the price difference for alternative fuels is significant.
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Gas Malaysia Berhad
MARC Analysis

Exhibit 8: Price comparison of natural gas and alternative fuels Type of tariff Natural Gas Tariff Diesel Tariff A 19.52 Tariff B 20.61 Tariff C 13.98 75.55 Tariff D 14.61 75.55 Tariff E 16.07 75.55 Tariff F 16.07 75.55 Tariff L 16.45 75.55
Source: KeTTHA (Kementerian Tenaga, Teknologi Hijau dan Air Malaysia)

LPG 69.78 69.78 69.78 69.78 69.78

MFO 60.44 60.44 60.44 60.44 60.44

Commercial and residential customers make up less than 1% of sales volume. Supply of natural gas to the commercial sector is focused on major urban centres in Kuala Lumpur, Petaling Jaya, Putrajaya and Cyberjaya. Low collection risk Gas Malaysia grants a 30-day credit period to its customers. The supply of gas will be disconnected if gas bills are not paid for more than 40 days. A bi-weekly meeting is conducted by a credit review committee to monitor the companys receivables profile. Gas Malaysia further mitigates its collection risk by obtaining a bank guarantee or cash deposits for two months value of the average month gas bill. To date, Gas Malaysias collection ranged between 34 days to 39 days in the past five years. Satisfactory operating track record Gas Malaysia has adopted a comprehensive operation and maintenance (O&M) programme to ensure a safe and reliable gas supply to its customers. The company also adheres to SIRIMs MS ISO 9001:2008 and MS ISO 14001:2004 for operational systems and standards and OHSAS 18001:2007 certification for occupational health and safety management systems. The O&M and Technical Services Department is responsible for periodic maintenance, trouble-shooting and patrolling of the gas infrastructure. A detailed maintenance schedule is prepared to monitor the progress of the maintenance work performed for all parts of the pipeline and stations. Isolation valves are installed at appropriate intervals and junctions to enable shut-off in cases of emergency, while corrosion control devices are installed to prevent corrosion to the pipelines. In addition, the company carries out daily patrols to prevent any unauthorised contractors from working near the infrastructure. MARC notes that there have been no major safety issues encountered by the company over the past 10 years. Expansion plans constrained by regulated margin and supply Despite the growing demand for natural gas in Peninsular Malaysia, Gas Malaysia has been facing supply constraints from Petronas over the past few years. As such, Gas Malaysias expansion plans were more modest over the years. This is evident in the rather slow infrastructure expansion of 45 km, 70 km and 101 km of pipelines construction in FY2008, FY2009 and FY2010 respectively, as opposed to 185 km in FY2006. In FY2011, Gas Malaysia constructed 18.3 km of pipeline, thereby expanding its constructed pipeline network to 1,720.6 km (FY2010: by 100.8 km to 1,702.3 km) and including the pipeline handed over by third parties, Gas Malaysias total pipeline will increase to approximately 1,800km. The agency believes that additional supply from the new re-gasification terminal could offer supply opportunities that would enable Gas Malaysia to grow the business more rapidly in the future. However, MARC understands that price for gas above a certain threshold would be based on market price.

Gas Malaysia Berhad

MARC Analysis

FINANCIAL RISK ANALYSIS Profitability


Exhibit 9: Selected indicators FYE 31 Dec Revenue (RM Mil) Pre-tax profit (RM Mil) Operating profit margin (%) OPBITDA return on assets (%) 2011 2,000.2 294.7 14.3 21.34 2010 1,807.5 388.4 21.1 27.7 2009 1,753.1 325.9 18.3 25.4 2008 1,879.6 356.5 18.8 30.2 2007 1,388.9 292.9 21.5 50.4

OPBITDA: Operating profit before interest, tax, depreciation and amortisation

Exhibit 10: Revenue breakdown (RM Mil) FYE 31 Dec 2011 Industrial 1,945.4 Commercial 35.2 Residential 5.3 Tolling 14.3 Total 2,000.2

2010 1,759.1 30.4 5.0 13.0 1,807.5

2009 1,710.5 26.8 4.8 11.0 1,753.1

2008 1,838.3 28.4 3.9 9.0 1,879.6

2007 1,358.6 19.8 3.3 7.2 1,381.7

Being the only piped natural gas distributor in Peninsular Malaysia, Gas Malaysia enjoys a captive market. Revenue for FY2011 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 MMBtu from RM3.95 MMBtu previously. Cash Flow Protection and Financial Flexibility
Exhibit 11: Selected indicators FYE 31 December Cash flow from operation (RM000) Free cash flow (RM000) Cash and cash equivalent (RM000) Cash ratio 2011 261,654 (160,979) 327,004 (1.13) 2010 369,417 122,189 477,996 1.74 2009 300,539 61,905 347,882 1.56 2008 368,039 220,314 281,334 1.05 2007 312,858 183,224 121,623 0.53

Operating cash flows was lower at RM261.7 million (FY2010: RM369.4 million) due to revised tariff in June 2011. For FY2011, free cash flow was negative at RM161.0 million as the company increased its dividend payout to RM387.3 million (FY2010: RM173.2 million) due to its listing corporate exercise. For future capital expenditure, Gas Malaysia has standby credit facilities in place, including the existing bond programme of RM500 million which only expires in 2016. With cash and cash equivalent of RM327.0 million as at end-FY2011, the company is able to support its ongoing capital expenditure commitments. Capital Structure
Exhibit 12: Selected indicators FYE 31 December Debt-to-equity (x) Long-term debt-to-equity (x) Short-term debt-to-equity (x) Shareholders funds (RM Mil) 2011 0.00 0.00 0.00 1,009.4 2010 0.00 0.00 0.00 1,167.6 2009 0.00 0.00 0.00 1,042.5 2008 0.00 0.00 0.00 987.1 2007 0.10 0.00 0.10 816.2

The RM500 million IMTN programme is available until 2016 with no current outstanding notes in issuance. The company has indicated that for FY2012 it intends to fully distribute all its after-tax profits as dividends and thereafter plans to maintain a 75% dividend pay-out ratio subject to there being no major capital outlay planned in the near term. MARC expects the company continue to maintain financial prudent in funding its capital expenditure programme going forward.

Gas Malaysia Berhad

MARC Analysis

MANAGEMENT AND OTHER QUALITATIVE FACTORS The management team is led by Datuk Muhamad Noor Hamid as Managing Director, a veteran with a 30 years of experience in the oil and gas industry, of which 20 years was spent in Petronas, mainly in the gas and pipeline division. The board also includes representatives from its Japanese shareholders who are major gas players in the Japanese market, thereby providing the company valuable technical support and facilitating in the transfer of know-how to the local staff of Gas Malaysia.

Gas Malaysia Berhad

MARC Analysis

CORPORATE INFORMATION (As at January 31, 2012) BOARD OF DIRECTORS YBhg Dato Hamzah Bakar Datuk Muhamad Noor Hamid Shazali Dato Haji Shahrani Datuk Hj Hasni Harun Datuk Puteh Rukiah Abd Majid Samsudin Miskon David Tan Lye Chong Tadaaki Maeda Syed Abu Bakar S Mohsin Almohdzar COMPANY SECRETARY Zainul Abidin Haji Ahmand MAJOR SHAREHOLDERS MMC-Shapadu (Holdings) Sdn Bhd Tokyo Gas-Mitsui & Co. Holdings Sdn Bhd Petronas Gas Berhad Petroliam Nasional Bhd SENIOR MANAGEMENT Datuk Muhamad Noor Hamid Ahmad Hashimi Abdul Manap Mohamed Sophie Mohamed Rashidi Mohd Nisharuddin Mohd Noor Mohamad Farid Ghazali Zainul Abidin Haji Ahmad Raja Iskandar Raja Mukhtaruddin Jekria Haji Ibrahim Mohd Daharie Che Din HEAD OFFICE GAS MALAYSIA BERHAD 5, Jalan Serendah 26/17, Seksyen 26 Peti Surat 7901 40732 Shah Alam Selangor CONTACT Telephone No. Facsimile Email Address Home Page AUDITORS PricewaterhouseCoopers LISTING To be listed on Bursa Malaysia. (603) 5192 3000 (603) 5192 6766 ccu@gasmalaysia.com www.gasmalaysia.com 55% 25% 20% 1 Special Share Managing Director Senior General Manager, Operations & Maintenance General Manager, Accounting & Finance General Manager, Technical General Manager, Marketing Senior Manager, Legal and Secretarial Manager, Human Resource Manager, Health, Safety, Environment & Quality Manager, Procurement and Contracts

Chairman Managing Director

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Gas Malaysia Berhad

MARC Analysis

Appendix ISSUE STRUCTURE & TERMS


Facility RM500.0 million Al-Murabahah Medium Term Notes (MTN) Programme. Purpose To part finance capital expenditure for the construction and expansion of natural gas pipeline infrastructure and for working capital requirements. Tenure Ten years from the date of first issuance of the MTN Programme. The MTN is to be issued for maturities between 1 year and up to 10 years during the tenure of the MTN programme. However, the final maturity of the MTN shall not exceed the tenure of the MTN Programme. Security Charge over the Designated Account and negative pledge over the assets of Gas Malaysia. Designated Account

Debt Service Reserve Account (DSRA)

To capture and gradually build up the profit and principal payments of the MTNs issued under the Programme in advance. The DSRA is to be built up to an amount equivalent to the next profit and principal payment of the outstanding MTNs by crediting 20% of the required amount every month for five months, the first to commence six months prior to the forthcoming profit and/or principal payment date.

Status update: The trustee has confirmed that the amount in the DSRA account as at January 16, 2012 stood at RM5,070.73
Financial Covenants

Debt Service Cover Ratio (DSCR ratio)

DSCR means the ratio of the combined cash balances in the bank accounts of Gas Malaysia at the beginning of the previous twelve-month period plus the net operating cash flow before debt service obligations (NOCF) for the previous twelve-month period, over Gas Malaysias debt service obligations (including but not limited to principal, fees, commissions and profit payments) paid during the previous twelve-month period. Gas Malaysia has to maintain a minimum DSCR of 1.25x commencing from the first anniversary of the first issuance until the final maturity of the programme.

Status update: The auditor has confirmed as at December 31, 2010 that the DSCR ratio of Gas Malaysia was in compliance with the minimum DSCR covenant of 1.25 times at 3,188.79 times. Debt to Equity Ratio (DE ratio) of not exceeding 2.0 times
Debt means the aggregate of the amount outstanding arising from all borrowings obtained including the aggregate of all monies whether principal and profit portion payable (for the next profit payment period) under the programme (other than inter-company unsecured and subordinated borrowings or advances). Equity means the amounts paid up on the issued share capital of Gas Malaysia; the amounts standing to the credit of the capital and revenue reserves of Gas Malaysia including any share premium account and profit and loss account, retained earnings, and shareholders advances which are subordinated to the programme.

Status update: The auditor has confirmed as at December 31, 2010 that the DE ratio of Gas Malaysia was in compliance with the minimum DE ratio covenant of 2.0 times at 0.0 times.

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RATING SYMBOLS & DEFINITIONS ISLAMIC CAPITAL MARKET INSTRUMENT RATINGS


LONG-TERM RATINGS
MARCs Long-term Ratings are assigned to Islamic capital market instruments with maturities of more than one year. These ratings specifically assess the likelihood of timely payment of the instrument issued under the various Islamic financing contract(s). Investment Grade AAAID Extremely strong ability to make payment on the instrument issued under the Islamic financing contract(s).

AAID AID BBBID

Very strong ability to make payment on the instrument issued under the Islamic financing contract(s). Risk is slight with degree of certainty for timely payment marginally lower than for instruments accorded the highest rating. Strong ability to make payment on the instrument issued under the Islamic financing contract(s). However, risks are greater in periods of business and economic stress than for instruments with higher ratings. Adequate ability to make payment on the instrument issued under the Islamic financing contract(s). Vulnerable to moderately adverse developments, both internal and external.

Non-Investment Grade BBID Uncertainties exist that could affect the ability of the issuer to make payment on the instrument issued under the Islamic financing contract(s).

BID CID DID

Significant uncertainty exists as to timely payment on the instrument issued under the Islamic financing contract(s). Slight adverse developments could impair issuers ability to fulfill such obligation. Possesses a substantial risk of default, with little capacity to address further negative changes in financial circumstances. Failed to make scheduled payment on the instrument issued under the Islamic financing contract(s).

Note: Long-term Ratings from AA to B may be modified by a plus (+) or minus (-) suffix to show its relative standing within the major rating categories. Bank-guaranteed issues will carry a suffix (bg), corporate-guaranteed issues (cg), issues guaranteed by a financial guarantee insurer (FGI) (fg), and all other supports (s) when such guarantees or support give favourable effect to the assigned rating.

SHORT-TERM RATINGS
MARCs Short-term Ratings are assigned to Islamic capital market instruments with original maturities of one year or less, and are intended to assess the likelihood of timely payment of the instrument issued under the various Islamic financing contract(s). Investment Grade

MARC1ID MARC2ID MARC3ID

Extremely strong capacity to make timely payment on the instrument issued under the Islamic financing contract(s). Strong capacity to make timely payment on the instrument issued under the Islamic financing contract(s). Timeliness of payment is slightly susceptible to adverse changes in operating circumstances and economic conditions. Adequate capacity to make timely payment on the instrument issued under the Islamic financing contract(s). Moderately adverse changes in operating environment and economic conditions may weaken financial capacity to fulfil such obligation.

Non-Investment Grade

MARC4ID DID

Vulnerable to non-payment of instrument issued under the Islamic financing contract(s). Capacity to make payment on the instrument is dependent on favourable business, financial and economic conditions. Failed to make scheduled payment on the instrument issued under the Islamic financing contract(s).

Note: Short-term Ratings will also carry a suffix (bg) for bank-guaranteed issues, (cg) for corporate-guaranteed issues, (fg) for FGI-guaranteed issues, and (s) for all other support when such guarantees or support give favourable effect to the assigned rating. Subscript ID for Long-term and Short-term Ratings denotes Islamic Private Debt Security.

RATING OUTLOOK
MARCs Rating Outlook assesses the potential direction of the Islamic Capital Market Instrument Rating over the intermediate term (typically over a one- to two-year period). The Rating Outlook may either be: POSITIVE NEGATIVE STABLE DEVELOPING which indicates which indicates which indicates which indicates that that that that a rating a rating a rating a rating may be raised; may be lowered; is likely to remain unchanged; or may be raised, lowered or remain unchanged.
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Copyright 2012 Malaysian Rating Corporation Berhad and any of its subsidiaries or affiliates (MARC) have exclusive proprietary rights in the data or information provided herein. This document is the property of MARC and is protected by Malaysian and international copyright laws and conventions. The data and information shall only be used for intended purposes and not for any improper or unauthorised purpose. All information contained herein shall not be copied or otherwise reproduced, repackaged, transmitted, transferred, disseminated, redistributed or resold for any purpose, in whole or in part, in any form or manner, or by any means or person without MARCs prior written consent. Ratings are solely statements of opinion and therefore shall not be taken as a statement of fact under circumstance. The info rmation which MARC relies upon to assign its ratings includes publicly available and confidentially provided information obtained from issuers and its advisers including third-party reports and/or professional opinions which MARC reasonably believes to be reliable. MARC assumes no obligation to undertake independent verification of any information it receives and does not guarantee the accuracy, completeness and timeliness of such information. MARC OR ITS AFFILIATES, SUBSIDIARIES AND EMPLOYEES DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTY AS TO THE ACCURACY OR COMPLETENESS, MERCHANTIBILITY OR FITNESS OF ANY INFORMATION CONTAINED HEREIN FOR ANY PARTICULAR PURPOSE AND SHALL NOT IN ANY EVENT BE HELD RESPONSIBLE FOR ANY DAMAGES, DIRECT OR INDIRECT, CONSEQUENTIAL OR COMPENSATORY, ARISING OUT OF THE USE OF SUCH INFORMATION. Any person making use of and/or relying on any credit analysis report produced by MARC and information contained therein solely assumes the risk in making use of and/or relying on such reports and all information contained therein and acknowledges that this disclaimer has been read and understood, and agrees to be bound by it. A credit rating is not a recommendation to buy, sell or hold any security and/or investment. Any user of this report should not rely solely on the credit rating and analysis contained in this report to make an investment decision in as much as it does not address non-credit risks, the adequacy of market price, suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security concerned. Ratings may be changed, placed on MARCWatch, suspended or withdrawn at any time for any reason at the sole discretion of MARC. MARC may make modifications to and/or amendments in credit analysis reports including information contained therein at any time after publication as it deems appropriate. MARC receives fees from its ratees, and has structured reporting lines and compensation arrangements for its analytical membe rs in a manner designed to promote the integrity of its rating process, and to eliminate and/or manage actual and/or potential conflicts of interest.

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Statement of No Conflict of Interest

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MARC, its rating committee members and analysts involved in the aforementioned rating have not encountered and/or are not aware of any conflict of interest situation.

2012 Malaysian Rating Corporation Berhad

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Gas Malaysia Berhad

MARC Analysis