Moody’s Investors Service has affirmed Petroliam Nasional Bhd's (Petronas) A1 domestic issuer and foreign currency senior unsecured ratings, but changed the outlook from stable to negative.
The rating agency also affirmed the A1 rating for Petronas Capital Ltd’s senior unsecured notes and the US$15 billion medium-term note programme as well as sukuk issued through Petronas Global Sukuk Ltd, but changed its outlook to negative from stable.
Moody’s said the rating action was due to the government’s announcement that Petronas would be paying RM26 billion in dividends in 2018 and RM54 billion (inclusive of a one-off special dividend of RM30 billion) in 2019.
"The negative outlook on Petronas' ratings reflects our view that its financial profile may deteriorate if the government continues to ask the company to keep dividend payments high, especially if oil prices decline," said Moody’s senior vice-president Vikas
He said such a situation would no longer support a ratings level for the company that was currently two notches above that of the sovereign.
"Petronas' ratings could be constrained to no more than one notch above that of the sovereign,” said Halan, who is also Moody's lead analyst for Petronas.
Although the national oil company could support the dividend payments announced in the budget and still maintain a net cash position, a further increase in regular dividend payments could not be ruled out, especially if the government's funding needs increased, he said.
“High shareholder returns will reduce the company's ability to absorb the volatility in crude oil prices and constrain its financial flexibility. Nonetheless, Moody's expects that Petronas will continue to invest in the growth of its production and reserves,” he added.
Halan stressed that further changes to the government's policies for the oil and gas sector could affect Petronas' position as the sole owner of the country's petroleum resources, and increase the royalties paid on its upstream oil and gas production.
Petronas' gross financial leverage, as measured by total debt/earnings before interest, taxes, depreciation and amortisation, improved to 0.7 times for the 12 months ended June 30, 2018, from about 1.0 times in 2016.
Moody's expected the company to maintain its gross financial leverage below 0.8-1.0 times over the next two to three years.
It said Petronas’ total debt/total capitalisation remained conservative, at below 15 percent as of June 30, 2018, and Moody's expected this ratio would remain at 15-20 percent over the next two to three years compared with its downgrade threshold of above 30-35 percent.
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 — would likely stay at RM75 billion-RM80 billion over the next two to three years, based on the rating agency's current oil price assumption of US$50-US$70 per barrel through 2019.
“Overall, Petronas’ credit metrics will continue to be significantly stronger than the level required to maintain its A1 ratings if there is no further large one-off dividend requests from the government or if the government allows Petronas to reduce dividends when oil prices decline,” it added.