Fitch: Malaysia's Budget has limited impact on rated corporations

SINGAPORE: The proposals in Malaysia's 2019 Budget are likely to have only a limited impact to Fitch Ratings' rated Malaysian issuers, Petroliam Nasional Bhd (Petronas) (A-/ Stable), Genting Bhd (A-/Stable), and Sime Darby Plantation Bhd (BBB+/Stable).

The rating agency said on Monday the Malaysian government proposed to revise casino duties up to 35%, representing a 10 percentage point increase over existing duty rates. 

This saw Genting Malaysia reviewing its marketing strategy and cost structure to mitigate the financial impact of the proposed tax increase.

Due to this increase, Fitch estimated Genting Bhd's consolidated EBITDAR after minorities will decline by around 8%-9%, and net debt/EBITDAR will increase to 0.6 times in 2019 and 0.9 times in 2020 versus our previous expectation of 0.5 times and 0.7 times, respectively. 

This is assuming the tax rate will increase by 10 percentage point on gaming revenue before factoring in any potential cost savings from Genting Malaysia's review of its marketing strategy and cost structure. 

Under this scenario, Genting Bhd's financial profile remains in line with Fitch's leverage expectation of below one time, although headroom is reduced as the company embarks on its third large-scale integrated resort development in Las Vegas.

The Malaysian government will also implement a 10% palm oil blending rate (B10 programme) for biodiesel used in transportation sector and 7% rate for biodiesel in the industrial sector, as well as allocate RM30mil to assist smallholders to obtain Malaysian Sustainable Palm Oil certification. 

Fitch sees these initiatives as positive to support the Malaysian palm oil industry in the long term. 

However, the impact is likely to be limited on overall demand and crude palm oil (CPO) price in the short term.

 The Malaysia plantation minister in 2016 estimated that additional demand when the B10 blending programme is fully implemented will reach about 750,000 tonnes of CPO, which is small relative to Malaysia's total annual production of 19.9 million tonnes.