This article first appeared in The Edge Financial Daily on September 26, 2018

KUALA LUMPUR: Velesto Energy Bhd is hoping the government could loosen the requirement for Malaysian companies to convert 75% of foreign currency (forex)-derived earnings to ringgit in the upcoming Budget 2019.

At the same time, the government could also provide incentives to financial institutions to encourage them to lend more support to local players in the oil and gas (O&G) sector, said Velesto president Rohaizad Darus.

Rohaizad said while Velesto earns in US dollar, many of its financial commitments are derived in the greenback too.

“People like us earn in US dollar. My [financial] commitment is not immediate ... it takes three to five weeks [but] our money is converted to ringgit upfront.

“It would be great if the US dollar that we received does not need to be converted to the ringgit as per Bank Negara Malaysia (BNM) requirements [introduced] two years ago,” he added.

Most O&G companies earn in US dollar, and their financing is also commonly derived in the same currency.

BNM’s requirements require exporters to retain only 25% of earnings in foreign currency, while the rest must be converted to ringgit to boost ringgit liquidity and encourage more domestic trade of the local currency, in light of a sliding ringgit against the US dollar at the time.

In December 2016, the ringgit slid up to 4.48 against the greenback amid prospects of a US Federal Reserve rate hike at the time. Yesterday evening, the ringgit was trading at 4.14 against the dollar.

Rohaizad also suggested the government to “somehow encourage banks” to support the O&G industry, especially small and medium enterprises (SMEs) which could miss the next industry upcycle due to lack of funds to keep their businesses operating well.

“Incentives could be given to banks, not [necessarily] directly to O&G players. For us, [the problem of funding] may not be critical, but [it is] for the smaller players ... I would like to see some incentives given to encourage banks to support local players especially SMEs,” he said.

“When it comes to downturns, O&G SMEs are the worst hit. If financial institutions don’t support them, it gets more difficult for them.”