SMJ Sdn Bhd, a company owned by the Sabah state government, has been given the highest credit rating of AAA by RAM Ratings for its plan to raise up to RM10.0 billion through Islamic medium-term notes (Sukuk Wakalah).
This rating indicates that experts see the company’s financial prospects as stable and secure.
SMJ was formed as the state-owned oil and gas company for Sabah, working in partnership with PETRONAS, the national oil company.
SMJ’s main job is to manage and oversee all of the state’s involvement in the oil and gas industry, including production, refining, and selling.
Since the Sabah state government owns SMJ, the company is very important to the state’s financial and political interests.
It plays a key role in making money from the state’s oil and gas resources. A special advisor, Datuk Seri Panglima Lim Haw Kuang, who has extensive experience with Royal Dutch Shell, works closely with SMJ.
With strong support from the Sabah government, SMJ has been able to make favourable deals with PETRONAS.
This includes taking part in contracts for oil production and buying a stake in a petrochemical plant.
These good deals mean that SMJ should have enough money to pay its debts and provide profits to the state government.
SMJ also plans to buy all of Sabah International Petroleum Sdn Bhd (SIP), which owns a share in a liquefied natural gas plant.
Although SMJ should be able to support itself financially, the Sabah state government is ready to help if needed. This shows how important SMJ is to the state, and the government has even agreed to write a support letter for the Islamic medium-term notes.
SMJ’s business strategy focuses on investing in existing, profitable oil and gas assets rather than the riskier exploration phase. They will buy stakes in PETRONAS-owned activities in Sabah and make sure these assets make money and have a healthy cash flow. The company’s diversified profile also helps protect it from major changes in oil and gas prices.
The future looks positive for SMJ, with expected strong cash flow and the ability to cover its debt. Over the next three years, they expect to generate approximately RM491 million annually. SMJ plans to issue up to RM1.2 billion in Islamic medium-term notes in 2023 and another RM200 million in 2025 to cover costs. This provides a strong financial cushion.
While SMJ’s debt may increase as it invests in more assets, it’s expected that this debt will gradually reduce as the investments begin to make money. The company’s overall financial health should remain good. However, it should be noted that factors beyond SMJ’s control, such as weak crude oil and natural gas prices, could negatively affect the company’s business and financial ability.