Moody’s cuts Petronas out­look to ‘ nega­tive’

> Oil firm’s fi­nan­cial pro­file may de­te­ri­o­rate if govt wants it to main­tain high div­i­dends: Rat­ing agency

The Sun (Malaysia) - - SPEAK UP -

PETAL­ING JAYA: Moody’s In­vestors Ser­vice has down­graded Petro­liam Na­sional Bhd’s (Petronas) rat­ings out­look to “nega­tive” from “sta­ble” due to higher div­i­dend pay­out to the govern­ment.

“The nega­tive out­look on Petronas’ rat­ings re­flects our view that the fi­nan­cial pro­file of Petronas may de­te­ri­o­rate if the govern­ment con­tin­ues to ask the com­pany to keep div­i­dend pay­ments high, es­pe­cially should oil prices de­cline,” Moody’s se­nior vice-pres­i­dent Vikas Halan said in a state­ment yes­ter­day.

“Such a sit­u­a­tion would no longer sup­port a rat­ings level for the com­pany that is cur­rently two notches above that of the sov­er­eign. In such a sce­nario, Petronas’ rat­ings could be con­strained to no more than one notch above that of the sov­er­eign,” he added.

None­the­less, Moody’s has af­firmed the “A1” do­mes­tic is­suer and for­eign cur­rency se­nior un­se­cured rat­ings of Petronas.

Petronas will pay div­i­dends of RM26 bil­lion in 2018 and RM54 bil­lion (in­clu­sive of a one-off spe­cial div­i­dend of RM30 bil­lion) in 2019 to help the gov­er­ment fully set­tle the out­stand­ing tax re­funds es­ti­mated at RM37 bil­lion.

Moody’s said al­though Petronas can sup­port the div­i­dend pay­ments an­nounced in Bud­get 2019 and still main­tain a net cash po­si­tion, a fur­ther in­crease in reg­u­lar div­i­dend pay­ments can­not be ruled out es­pe­cially if there is an in­crease in govern­ment fund­ing needs.

“High share­holder re­turns will re­duce the com­pany’s abil­ity to ab­sorb the volatil­ity in crude oil prices and con­strain its fi­nan­cial flex­i­bil­ity.”

De­spite the high div­i­dend pay­out, the rat­ing agency ex­pects Petronas will con­tinue to in­vest in the growth of its pro­duc­tion and re­serves.

“Fur­ther, changes to the Malaysian govern­ment’s poli­cies for the oil & gas sec­tor could af­fect Petronas’ po­si­tion as the sole owner of the coun­try’s petroleum re­sources, and in­crease the roy­al­ties paid on its up­stream oil & gas pro­duc­tion.

“These changes could put pres­sure on the com­pany’s rat­ings, es­pe­cially if Petronas is re­quired to con­tinue pay­ing high div­i­dends,” said Halan, who is also Moody’s lead an­a­lyst for Petronas.

Petronas’ gross fi­nan­cial lever­age — as mea­sured by to­tal debt/ebitda (earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­sa­tion) — im­proved to 0.7 times for the 12 months ended June 30, 2018 from about 1.0 times for 2016. Moody’s ex­pects the com­pany to main­tain its gross fi­nan­cial lever­age below 0.8-1.0 times over the next two to three years.

Based on Moody’s ad­justed num­bers, the com­pany’s net cash po­si­tion — which rose to RM97 bil­lion as at June 30, 2018 com­pared with RM42.8 bil­lion on Dec 31, 2016 — will likely stay at RM75 bil­lion to RM80 bil­lion over the next two to three years, based on Moody’s cur­rent oil price as­sump­tion of US$50-$70 a bar­rel through 2019.

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