Frankly Speaking

-A +A

NO difference in rating

A day after Fitch Ratings revised Malaysia's sovereign credit rating outlook to "negative" from "stable" on concerns over the federal government's growing budget deficit, it did the same for Petronas. This effectively puts the national oil company's rating on a par with the country's.

Interestingly, just two years ago, Petronas commanded a better debt rating outlook than Malaysia. A 2012 report by one rating agency said that Petronas generally received a rating that was two notches above the government's.

While the recent revision is not an actual downgrade, it raises concerns that Petronas' credit profile may be weakening more than the government's.

In its rating rationale two weeks ago, to revise its outlook for Petronas' long-term local currency issuer default rating to "negative" from "stable", Fitch said the rating was constrained by the fact that Petronas is wholly-owned by the government.

It noted that the sovereign has significant influence over the company's financial policies and strategies, and that Petronas' dividends continue to be important to government funding.

The rating agency's observations are not new or unique to Petronas. In most emerging economies, the national oil companies are normally owned by the government and usually give out handsome dividends to finance the country's development.

Petronas, which used to declare upto RM30 billion in dividends, has reduced its payout this year. Its president and CEO Datuk Shamsul Azhar Abbas has said that it would like to restrict the payout to 30% of net profit and allocate more cash resources to sustain its petroleum-related activities.

Hopefully, the recent rating outlook revision will prompt the government to give Petronas leeway in handling its finances.Hytex minorities puzzled

A boardroom tussle at Hytex Integrated Bhd has ended even before the minority shareholders realised it was brewing.

Substantial shareholders Nutox Ltd and PT Nusantara Rising Rich, which collectively control a 24.2% stake, on August 13 gave notice of their intention to remove executive chairman Sau Kim Hing and managing director Saw Kam Fock, and requisitioned an extraordinary general meeting towards this end.

But barely two days later, the two shareholders withdrew the requisition.

Nutox and PT Nusantara surfaced as major shareholders in February — the same month that Precious Continent Sdn Bhd — the investment vehicle of the brothers Saw and Sau, sold its 47.89% stake. Saw currently holds 2.47% equity interest in Hytex, while Sau has 2.33%.

Interestingly, the garment manufacturer announced the two notices on August 15.

For the minority shareholders, it would be another puzzling development. First, the company's share price went on a roller-coaster ride, soaring to 69 sen this year before tumbling to below 10 sen. It closed at 9.5 sen on August 16.

Now, the new controlling shareholders' swift change of mind will have the minorities wondering why they made the hostile move in the first place, and what caused them to withdraw the resolution.

Moreover, did Hytex fulfil Bursa Malaysia's rules on disclosing material information on a timely basis? In this regard, the company did not immediately reveal to the stock exchange, the notice served by Nutox and PT Nusantara to remove the founders.

Light at the end of the tunnel?

Although a joint-venture company has been appointed to undertake the feasibility study and detailed design work for the multibillion-ringgit Penang undersea tunnel project, many in the investment community are still not convinced that it will get off the ground.

And they cannot be faulted for it, because such a project is capital-intensive and difficult for the private sector to carry out, without government support. At least, that is what Corporate Malaysia is used to, where mega infrastructure projects are concerned.

This project involves more than just a 6.5km undersea tunnel between Butterworth and Penang island. Consortium Zenith BUCG Sdn Bhd also has to build a 4.5km bypass from Gurney Drive to Lebuhraya Tun Dr Lim Chong Eu, a 4.6km bypass between Lebuhraya Tun Dr Lim Chong Eu and Bandar Baru Air Itam, and a 1km paired road from Jalan Tanjung Bungah to Teluk Bahang.

The cost is estimated at RM6 billion or more — which would make any company hesitate. But Consortium Zenith BUCG, which reportedly has a paid-up capital of RM4.5 billion, is going ahead with it. It has so far secured an agreement in principle from the state government to undertake the project, and during the week of August 12-18, formed a JV between Astral Supreme Bhd and Zenith PMC Sdn Bhd to undertake the feasibility study and detailed design work.

In return, the consortium, which includes Chinese companies, will get 44.5ha of reclaimed land in Tanjung Pinang, and be allowed to collect toll on the tunnel and roads for 33 years.

For Chief Minister Lim Guan Eng, the strongest argument for the project is that it does not involve state funds, but only land, and that too reclaimed land. If Penang sees the project through, maybe the federal government could take its cue from it.

This story first appeared in The Edge weekly edition of Aug 19-25, 2013.