KUALA LUMPUR (Nov 8): Moody's Investors Service has affirmed the A1 domestic issuer and foreign currency senior unsecured ratings of Petroliam Nasional Bhd (Petronas), but changed the outlook to Negative, from Stable.
In a statement today, the global rating agency's senior vice-president Vikas Halan said the decision to change the outlook to negative, reflects its view that the financial profile of Petronas may deteriorate if the government continues to ask the national oil company to keep dividend payments high, especially should oil prices decline.
This follows the announcement by the government that Petronas will pay dividends of RM26 billion in 2018 and RM54 billion (inclusive of a one-off special dividend of RM30 billion) in 2019.
"Such a situation would no longer support a ratings level for the company that is currently two notches above that of the sovereign. In such a scenario, Petronas' ratings could be constrained to no more than one notch above that of the sovereign," Halan said.
As announced in Budget 2019 on Nov 2, Petronas will pay RM30 billion as a one-off special dividend to the government in 2019, in addition to the regular annual dividend, which in 2019 will total RM24 billion.
The company will also pay RM26 billion in dividends in 2018, versus annual dividend payments of RM16 billion in 2016 and 2017.
"Although Petronas can support the dividend payments announced in the budget and still maintain a net cash position, a further increase in regular dividend payments cannot be ruled out, especially if there is an increase in government's funding needs," Moody's said.
"High shareholder returns will reduce the company's ability to absorb the volatility in crude oil prices and constrain its financial flexibility," the statement added.
Nonetheless, Moody's expects Petronas to continue investing in the growth of its production and reserves.
"Furthermore, changes to government's policies for the oil and gas (O&G) sector could affect Petronas' position as the sole owner of the country's petroleum resources, and increase the royalties paid on its upstream O&G production," Halan, who is also Moody's lead analyst for Petronas, said.
"These changes could put pressure on the company's ratings, especially if Petronas is required to continue paying high dividend payments," he added.
Based on Moody's adjusted numbers, the company's net cash position — which increased to RM97 billion at June 30, 2018 compared with RM42.8 billion on Dec 31, 2016 — will likely stay at RM75 billion to RM80 billion over the next two to three years, based on Moody's current oil price assumption of US$50-US$70 per barrel through 2019.
"Given the Negative outlook, an upgrade of the A1 ratings is unlikely," Moody's said.
"The Negative outlook on the ratings could be revised to Stable, if there is reduced uncertainty around the company's dividend policy and further clarity of the government's policy for the O&G sector, both of which lead us to conclude that the company will retain its existing financial flexibility and credit profile," it added.