Petronas can absorb negative cashflow of RM40b for 2 years, says S&P

Petroliam Nasional Bhd (Petronas) and a consortium led by Japan's JXTG Holdings Inc are among the companies interested in buying a stake in India's Bina oil refinery, a source close to the matter said.

KUALA LUMPUR: S&P Global Ratings estimates that Petroiam Nasional Bhd's (Petronas) balance sheet can absorb negative discretionary cash flows of RM40bil for two years.

“Assuming no change to the company's investment plan, this implies additional one-off dividends of RM40bil to RM50bil, on top of the regular and exceptional dividends in the 2019 budget,” it said.

S&P said the special dividend one-off dividend of RM30bil to the government, however, validates its long-standing credit view that Petronas can be subject to periodic cash calls from the government given its solid financial position, high importance to the national budget, and ownership control by the government. 

“We believe a sustained period of higher oil prices over the next two to three years will translate into higher dividends from Petronas – and potentially additional one-off dividends to the state,” it said. 

S&P capped its issuer credit rating on Petronas (foreign currency A-/Stable/--; local currency A/Stable/--) to that of the sovereign of Malaysia (A-/Stable/A-2; local currency A/Stable/A-1), despite Petronas' stronger stand-alone credit profile, given this government intervention risk. 

Commenting on the RM30bil special dividend to the government as announced in last Friday's Budget 2019, the rating agency said Petronas' solid balance sheet, sizable net cash position and ample liquidity provided ample buffer against the payment.

“The financial impact of a one-off dividend of this size is moderate for Petronas' cash position and balance sheet quality, in our view. 

“The company can finance this dividend, given cash and short-term equivalent of nearly RM180nil as at June 30, 2018; immaterial reported debt of about RM66.3bil as of June 30, 2018 and a net cash position of nearly RM114bil as of June 30, 2018; and solid operating cash flows,” it said.

S&P said an exceptional dividend of RM30bil would effectively offset inflows of nearly RM30bil the company received following the completion of the transaction with Saudi-based  oil and gas producer Saudi Aramco in the first quarter of 2018.

It projects Petronas will remain in a net cash position in 2019 and, depending on the pace of capital spending disbursement, in 2020 as well. 

“This underpins our 'aa' stand-alone credit profile on the company. We currently project operating cash flows of at least RM80bil in 2019 amid higher hydrocarbon prices. These are sufficient to fund capital spending that we forecast at about RM55bil and regular dividends to the government and minority interest that we estimate at about RM25bil.
 
“The special dividend does not affect Petronas' solid liquidity either, in our view. Petronas had minimal short-term debt maturities of about RM11.5bil  as of June 30, 2018, or less than 10% its cash balance,” said S&P.