Friday 29 Mar 2024
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KUALA LUMPUR (Nov 12): Fitch Ratings said the proposals in Malaysia's Budget 2019 are likely to have only a limited impact to its rated Malaysian issuers, Petroliam Nasional Bhd (Petronas) (A-/Stable), Genting Bhd (A-/Stable) and Sime Darby Plantation Bhd (BBB+/Stable).

In a statement today, the rating agency said the Malaysian government proposed to revise casino duties up to 35%, representing a 10 percentage points (pp) increase over existing duty rates.

As a result of this increase, Fitch estimated that Genting's consolidated earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs (EBITDAR) after minorities will decline by around 8% to 9%, and net debt/EBITDAR will increase to 0.6 times in 2019 and 0.9 times in 2020 versus its previous expectation of 0.5 times and 0.7 times, respectively.

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

Under this scenario, Genting'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.

Fitch noted that 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 RM30 million 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, it added.

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.

Therefore, the rating agency expects neutral rating impact on Sime Darby Plantation.

In the case of state-owned oil and gas company Petronas, Fitch does not expect the special one-off dividend of RM30 billion to be paid to the state in 2019 to reverse its net cash position. As at end-June 2018, Petronas reported cash balances of RM174 billion and debt of RM66 billion.

Fitch expects the special dividend to be in addition to regular dividends, which it expects to be between RM20 billion and RM26 billion in 2019 (RM24 billion in 2018).

Fitch also does not rule out the possibility of higher dividend pay-outs over the coming few years, supported by a likely increase in Petronas' profits compared with 2017.

Despite the potentially higher dividends, Fitch expects Petronas' standalone credit profile of 'AA-' to remain intact. The Malaysian government has historically allowed Petronas to maintain a robust credit profile and cash balances with its dividends being lowered in line with weaker earnings, as was the case in 2015 and 2016, it noted.

"We think the government would support Petronas maintaining a sustained healthy credit profile due to its importance in generating national revenue and given the company's need to expand to sustain and improve its earnings generation," said Fitch.

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