IPO GAS Malaysia

Gas Malaysia Sdn Bhd, a company that distributes natural gas to households and industries, is said to be eyeing a listing on Bursa Malaysia in 2011 but that idea has not yet received the full backing of all of its shareholders.

It is learnt that the other shareholders are deciding on whether to green-light a listing but no decision has yet been made.

MMC Corp Bhd hoped to list Gas Malaysia in 2011. MMC currently owns 41.8% of Gas Malaysia but controls it as a subsidiary.

It is believed the company would be willing to pare down its stake to 20% as long as it can still equity account Gas Malaysia's earnings as an associate.

The company's controlling shareholder is MMC and other shareholders of the company are Petronas Gas Bhd, Shapadu Group and Tokyo Gas-Mitsui & Co.

Gas Malaysia is the sole distributor and retailer of natural gas to non-power companies in the country which consume less than two million mmbtu per day.

There would be interest from institutional investors to any flotation of Gas Malaysia given its steady business and cashflow.

It will be a good dividend yielding stock and the capex risk is quite minimal as it stands. Capital expenditure would be incurred to meet customer demand. The main risk surrounding the company would be the security of its gas supply and the margins it obtained.

In its annual latest report, MMC said Gas Malaysia was a steady provider of cashflow to the group. Gas Malaysia reported an 8% decline in pre-tax profit to RM326mil after its customers consumed 4% less gas after a new gas tariff was announced in March 2009. Revenue in 2009 was RM1.75bil compared with RM1.88bil in 2008.

The company in 2009 signed a formal agreement with Petronas for the supply of 300 million standard cu ft per day (mmscfd) of gas which Gas Malaysia said effectively allowed it strategise its long-term business plan more effectively.

Malaysian Rating Corp Bhd in its rating update on Gas Malaysia's debt in August 2010 said the company faces an ongoing challenge of securing more gas to meet the growing demand of its consumer, commercial and industrial customers.

The gas utility managed to secure an additional 82 million mmscfd on top of the current 300 mmscfd in December 2009 until December 2011. Although the additional gas supply addresses current supply constraints to some extent, MARC believes the long-term security of supply remains a key business issue.

The expiry of its gas supply agreement in 2012 further exposes Gas Malaysia to contract renegotiation and gas supply risks. MARC draws comfort from the essentiality of Gas Malaysia's role as the sole piped natural gas utility in Peninsular Malaysia, which in turn supports the rating agency's expectation that the utility will continue to receive strong regulatory support.