Rating agency says Petronas can absorb one-off dividends

KUALA LUMPUR: S&P Global Ratings estimates that Petroliam Nasional Bhd’s (Petronas) balance sheet can absorb negative discretionary cash flows of RM40bil for two years.

“Assuming no change to the company’s investment plan, this implies additional one-off dividends of RM40bil to RM50bil, on top of the regular and exceptional dividends in the 2019 budget,” it said.

S&P said the special one-off dividend of RM30bil to the government, however, validates its long-standing credit view that Petronas can be subject to periodic cash calls from the government given its solid financial position, high importance to the national budget, and ownership control by the government.

“We believe a sustained period of higher oil prices over the next two to three years will translate into higher dividends from Petronas – and potentially additional one-off dividends to the state,” it said.

S&P capped its issuer credit rating on Petronas (foreign currency A-/Stable/–; local currency A/ Stable/–) to that of the sovereign of Malaysia (A-/Stable/A-2; local cur- rency A/Stable/A-1), despite Petronas’ stronger standalone credit profile, given this government intervention risk.

Commenting on the RM30bil special dividend to the government as announced in last Friday’s Budget 2019, the rating agency said Petronas’ solid balance sheet, sizable net cash position and ample liquidity provided ample buffer against the payment.

“The financial impact of a one-off dividend of this size is moderate for Petronas’ cash position and balance sheet quality, in our view.

“The company can finance this dividend, given cash and short-term equivalent of nearly RM180nil as at June 30, 2018; immaterial reported debt of about RM66.3bil as of June 30, 2018 and a net cash position of nearly RM114bil as of June 30, 2018; and solid operating cash flows,” it said.

S&P said an exceptional dividend of RM30bil would effectively offset inflows of nearly RM30bil the company received following the completion of the transaction with Saudi-based oil and gas producer Saudi Aramco in the first quarter.