Fitch: Petronas capex burden reduced with Saudi Aramco's entry

Fitch positive on Saudi Arabian Oil Company's investment in Petronas' RAPID project

KUALA LUMPUR:  Petroliam Nasional Bhd's (Petronas) capital expenditure burden will be reduced with the entry of Saudi Arabian Oil Company (Saudi Aramco) as an investor in the refinery and cracker project in Pengerang, says Fitch Ratings.

The international ratings agency said on Thursday Saudi Aramco will take a 50% stake in selected ventures and assets of Petronas (A-/Stable) Malaysian downstream project.

While the investment is likely to reduce Petronas' capex burden, there will be no immediate effect on its ratings, which remain constrained by the sovereign rating (A-/Stable), it said. 

Petronas is fully owned by Malaysia and the government exerts significant influence over its operating and financial policies. 

“The transaction, if completed, will help reduce Petronas' committed capex requirements at a time when the company's operating cash flow generation has been pressured by weak oil prices. 

“Fitch expected investment in the US$16bil Refinery and Petrochemical Integrated Development (RAPID) project to represent a sharply rising portion of Petronas' capex through to 2019,” it said. 

The project consists of a refinery with a capacity of 300,000 barrels of oil equivalent a day, a naphtha cracker plant and other petrochemical facilities with a combined production capacity of 3 million tonnes a year of ethylene, propylene and olefin products. 

The commissioning of the refinery is targeted for early 2019, with the associated petrochemical plants phased in over time. 

Other facilities associated with the RAPID project, covering electrical and water supplies as well as a liquefied natural gas import terminal and a regasification terminal, will require additional capex of US$11bil.

In addition to its 50% stake, Saudi Aramco, the national oil company of Saudi Arabia (AA-/Negative), will also supply up to 70% of the refinery's crude feedstock requirements, while natural gas, power and utilities will be supplied by Petronas. 

Once completed, RAPID will increase Petronas' refining and petrochemical capacity by around 50%, as well as broaden the company's product range, notably in specialty chemicals.

Petronas, which continues to maintain a strong standalone credit profile of 'AA-', had already announced measures in 2016 to preserve cash flow. 

These included cuts in planned capex and operating expenditure through to 2020 of RM50bil and a lower dividend of RM13bil in 2017 (2016: RM16bil, 2015: RM26bil). 

The company's financial flexibility remains strong despite significant medium-term capex and dividend payments and includes a robust net cash position and conservative through-the-cycle leverage and coverage ratios. 
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