Govt may ask Petronas to pay special dividend again

“We believe that Petronas is financially in a comfortable position to pay, given its net cash position of RM82bil, ” said Kenanga Research, adding that government-linked companies would also likely be encouraged to pay higher dividends.

PETALING JAYA:Petroliam Nasional Bhd (Petronas) may again be called to boost its dividend payout to the government this year, on top of the RM24bil it has committed to, according to Kenanga Research.

This is on the back of the research house’s projected budget deficit for 2020 to range between 4% and 4.6%, which are levels experienced from 2011 to 2012, in the absence of a special dividend from Petronas or other extraordinary sources of income.

“The government may once again call on Petronas to pay a special dividend. A special dividend of RM30bil was paid in 2019.

“Such a sum could narrow the deficit by 1.8% of gross domestic product (GDP).

“We believe that Petronas is financially in a comfortable position to pay, given its net cash position of RM82bil, ” said Kenanga Research, adding that government-linked companies would also likely be encouraged to pay higher dividends.

The escalating Covid-19 outbreak and global oil price war continues to weaken external demand in the immediate term, weighing on Malaysia’s GDP growth in the first half of the year.

GDP growth is projected to slow sharply by 2.3% in the first half of 2020 (H1’20), from 3.6% in the H2’19, before gradually rebounding to 3.9% in the H2’20.

Kenanga Research noted that the GDP forecast revision is mainly attributable to the potential economic fallout in the services sector as transportation and tourism-related industry would be most substantially hit by the outbreak and the impact of oil supply shock.

According to the research house’s estimates, the Covid-19 stimulus budget announced on Feb 27 would be partly funded by a budget deficit that is set to widen from 3.3% to 3.7%.

This is only taking into account RM3.5bil of the government’s direct contribution to the total RM20bil stimulus package to address the Covid-19 impact, given that RM10bil is funded by a 4% reduction in employees’ EPF contribution and much of the remaining by Bank Negara’s balance sheet.

As Covid-19 has been declared a global pandemic, Kenanga Research opined that fiscal expansion is crucial in supporting growth trajectory.

“We reckon that the government needs to add at least RM3bil to the fiscal stimulus.

“As a result, the budget deficit is expected to widen by just 0.6% to 4.3%, ” it said.

Recently, the government announced a series of new measures worth an additional RM1bil to combat the impact of the spreading virus.

Apart from that, the research house said Bank Negara still has the space to lean towards further rates cut.

This is backed by a subdued inflation in the absence of demand-pull pressure, the impact of supply-side shock from lower oil prices, as well as the potential economic downturn due to Covid-19.

Therefore, the next Monetary Policy Committee decision will depend on Covid-19 implications as well as potential global crisis or recession brought about by the outbreak. “Should the global or domestic economy weaken more than expected, it would not surprise us if Bank Negara decides to cut the overnight policy rate by another 50 basis points to take it down to 2% which was the global financial crisis low.

“A cut of 25 basis points may inject around RM3bil into the incomes of households.

“In a worst case scenario of a full 100 basis points cut this year (from 3%), this could increase spending power by as much as RM12bil or 0.7% of GDP, ” said Kenanga Research.