KUALA LUMPUR: Fitch Ratings has affirmed Petroliam Nasional Bhd's long term foreign and local currency issuer defaut ratings (IDRs) at “A-” and affirmed its short-term foreign currency IDR at “F1”.
The international rating agency said on Thursday the outlook on the long-term IDRs was Stable.
Fitch also affirmed Petronas' foreign-currency senior unsecured rating and ratings on debt issued by Petronas Capital Ltd and guaranteed by Petronas at “A-”.
Petronas continues to maintain a strong standalone credit profile, assessed by Fitch at “AA-”.
“The foreign- and local-currency IDRs of Petronas are constrained by those of its sovereign owner Malaysia (A-/Stable),” it pointed out.
Petronas is 100% owned by Malaysia, and the government can exert significant influence over its operating and financial policies.
Fitch also said the standalone credit profile of Petronas continues to be strong and assessed by Fitch at “AA-”.
The rating headroom for the company has decreased due to pressure on operating cash flow generation as oil prices remain low.
This has been mitigated by the company's planned capex and operating expenditure savings through to 2020, which total RM50bil, and a lower dividend.
However, with oil prices likely to recover only slowly, operating cash flow is likely to continue being under pressure.
“Petronas has also built up a portfolio of international crude oil and gas producing assets in Asia-Pacific, central Asia, Middle East, Africa and Canada over the last 20 years,” it said.
Petronas' 2015 production entitlement was 1.6 million barrels of oil equivalent per day (boe/d).
The company's standalone financial profile remains strong and it continues to be net cash positive, and has the lowest through-the-cycle leverage and highest interest coverage ratios among its “AA-” rated peers, Royal Dutch Shell plc (AA-/Negative) and Total SA (AA-/Negative).
Petronas has guided for a dividend of RM13bil in 2017, which is down from RM16bil in 2016, RM26bil in 2015 and RM29bil in 2014.
“The reduction will allow Petronas to meet the majority of its capex from internally generated cash flows, even with weakened CFO due to low commodity prices.
“Nevertheless, we expect the company to continue to make sizeable contributions to the government.
“A sustained reduction in Petronas' dividend payments remains contingent on government policy and financial requirements,” it said.
Fitch expected Petronas' capex will remain relatively high under our base-case scenario, despite the company's planned capex reductions.
Under our base-case assumptions, Petronas will reduce capex to around MYR55bn in 2016 (2015: RM64.7bil), down by 15% from 2015 levels.
“We expect Petronas' capex to increase to RM57bil in 2017 and to RM60bil in 2018 under a slowly recovering oil price scenario as per our price deck.
“The share of capex in the downstream business is likely to rise sharply to around half of its total capex through to 2019, largely due to the RAPID project,” it said.
Commenting on the US$16bil RAPID project, it said that it would comprise of a refinery (capacity of 300,000 boe/d), a naptha cracker plant and other petrochemical facilities (combined production capacity of 3 million tonnes a year of ethylene, propylene and olefin products).
Once completed, it will increase the company's refining capacity by over 50% and its petrochemical capacity by around 50%, as well as broaden the company's product range, notably in specialty chemicals.
The commissioning of the refinery is targeted for early 2019, while the associated petrochemical plants will be phased in.
“We expect free cash flow to remain negative in the near term under our oil price deck assumptions, and given the company's high committed capex and dividend payments.
“Petronas' financial flexibility remains strong, however, with a net cash position of RM62bil in 2015, FFO-adjusted net leverage of negative 0.7 times, FFO gross leverage of 1.1 times and FFO interest cover of 27 times.
“We expect these ratios to improve further over 2017-2019 as oil and gas prices slowly recover,” it said.
Limited time offer:
Just RM5 per month.
