PETALING JAYA: Moody’s Investors Service’s review of Petroliam Nasional Bhd’s (Petronas) rating will focus on whether the management plans any reduction in its capital expenditure (capex), operating expenditure and dividends.
The ratings agency said yesterday that its review would also look into how Petronas, which is a national oil company (NOC), manages its level of borrowings.
It pointed out that Petronas (A1) has maintained a financial profile that has been strong for its rating, while the sovereign’s rating was A3 Stable
“The main constraint on Petronas’ rating is the geographic concentration of its reserves and production in Malaysia. Therefore, the company can withstand some extent of financial profile deterioration within its current ratings,” it said.
Moody’s noted that Petronas’ cashflow from operations would be insufficient to cover its capex and dividends, which would imply that the net borrowings of the company would increase.
It also said Petronas was going into the downturn with a strong cash balance of RM125bil. “As Petronas is rated above the sovereign, any downgrade of its baseline credit assessment (BCA) will result in a downgrade of its issuer ratings as long as the issuer ratings stay above the rating of the sovereign. We recently affirmed Malaysia’s A3 rating and stabilised the outlook on Jan 11.
“Given our assessment of a very high likelihood of support and dependence, it is unlikely that the issuer ratings of Petronas will fall below the rating of the Malaysia sovereign even if the BCA of Petronas declines by several notches,” it said.
Moody’s said the low oil prices would put pressure on most NOCs’ BCA, which indicates standalone credit strength.
Its oil price assumption for rating purposes was US$33 per barrel for both US light crude oil and Brent for 2016; US$38 for 2017 and US$43 for 2018. The stress was US$25.
“In all the cases, we expect the BCA to fall by at least one notch under our current oil price assumptions without taking into account a change in management strategy for coping with the sustained pressure on oil prices.
“Pure play upstream producers or integrated players with a small downstream presence will see more pressure on their fundamental credit profile.
Also, companies which already had high leverage going into the downturn could experience a multi-notch BCA downgrade,” it said.
Recall that on Jan 22, Moody’s placed the ratings of five NOCs and one NOC subsidiary in South and South-East Asia on review for a downgrade, as Moody’s recalibrates ratings globally for the sector in view of the sharp fall in oil prices.
Moody’s lowered its oil price estimates and expects a slow recovery for oil prices over the next several years.
Aside from Petronas, the other two NOCs are Oil & Natural Gas Corp and Oil India Ltd in South and South-East Asia which faced higher risk of downgrades as they were rated higher than sovereigns, it said.
Moody’s will complete its review of the NOCs’ ratings by the end of the first quarter of this year.
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