Singapore, November 08, 2018 -- Moody's Investors Service ("Moody's") has affirmed
the A1 domestic issuer and foreign currency senior unsecured ratings of
Petroliam Nasional Berhad (PETRONAS).
At the same time, Moody's has also affirmed the following three
ratings: (1) the A1 rating on the senior unsecured notes issued
by PETRONAS Capital Limited and guaranteed by PETRONAS, (2) the
(P) A1 rating on the $15 billion medium-term note (MTN)
program set up by PETRONAS Capital Limited and guaranteed by PETRONAS,
and (3) the A1 rating on the sukuk issued through PETRONAS Global Sukuk
Ltd.
The ratings outlook is changed to negative from stable.
RATINGS RATIONALE
The rating action follows the announcement by the Government of Malaysia
(A3 stable) that PETRONAS will pay dividends of MYR26 billion in 2018
and MYR54 billion (inclusive of a one-off special dividend of MYR30
billion) in 2019.
"The negative outlook on PETRONAS' ratings reflects our view that the
financial profile of PETRONAS may deteriorate if the government continues
to ask the company to keep dividend payments high, especially should
oil prices decline," says Vikas Halan, a Moody's Senior
Vice President. "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."
As announced in the Malaysian budget on 2 November 2018, PETRONAS
will pay MYR30 billion as a one-off special dividend to the Government
of Malaysia in 2019, in addition to the regular annual dividend,
which in 2019 will total MYR24 billion. The company will also pay
MYR26 billion in dividends in 2018 versus annual dividend payments of
MYR16 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. 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 expect that PETRONAS will continue to invest in the growth
of its production and reserves.
"Further, changes to the Malaysian government's policies for the
oil & 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 & gas production," adds Halan,
who is also Moody's Lead Analyst for PETRONAS. "These changes
could put pressure on the company's ratings, especially if
PETRONAS is required to continue paying high dividend payments."
PETRONAS' gross financial leverage — as measured by total debt/EBITDA
— improved to 0.7x for the 12 months ended 30 June 2018 from
about 1.0x for 2016. Moody's expects the company to maintain
its gross financial leverage below 0.8x-1.0x over
the next 2-3 years.
The company's total debt/total capitalization remains conservative,
at below 15% at 30 June 2018, and Moody's expects that this
ratio will stay at 15%-20% over the next 2-3
years as compared to its downgrade threshold of above 30%-35%.
Based on Moody's adjusted numbers, the company's net cash
position — which increased to MYR97 billion at 30 June 2018 compared
to MY42.8 billion on 31 December 2016 — will likely stay
at MYR75-MYR80 billion over the next 2-3 years, based
on Moody's current oil price assumption of $50-$70
per barrel through 2019.
Overall, credit metrics of PETRONAS 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 will allow PETRONAS to reduce dividends when oil
prices decline.
The A1 ratings reflect PETRONAS' standalone credit quality, as captured
in its a1 Baseline Credit Assessment (BCA).
The a1 BCA is supported by the company's: (1) large-scale
hydrocarbon reserves; (2) strong financial metrics; (3) conservative
financial policies; and (4) solid liquidity profile.
At the same time, PETRONAS' BCA remains constrained by the geographic
concentration of its oil & gas reserves in Malaysia, and the
relatively small scale of its downstream operations, with the latter
resulting in its elevated exposure to the cyclicality in the oil &
gas industry.
Moody's assesses the expectation of extraordinary support from the Government
of Malaysia (A3 stable) and the interdependence between the government
and the company as very high. However, this situation does
not result in any ratings uplift, given the lower rating of the
government relative to PETRONAS. The support assessment will result
in rating uplift if the BCA of PETRONAS falls below a3.
Moody's support assessment reflects PETRONAS' importance as the
country's national oil company and its strategic role in the development
of oil & gas reserves in Malaysia; both factors of which translate
to strong incentives for the government to provide support.
PETRONAS' foreign currency rating is two notches above Malaysia's foreign
currency bond rating, based on: 1) the company's extremely
strong standalone credit profile; and 2) PETRONAS' high proportion
of revenue (over 70% in 2017) from exports and international operations.
Given the negative outlook, an upgrade of the A1 ratings is unlikely.
The negative outlook on the ratings could be revised to stable if there
is reduced uncertainty around company's dividend policy and further
clarity of Government of Malaysia's policy for the oil and gas sector
both of which lead us to conclude that the company will retain its existing
financial flexibility and credit profile.
PETRONAS' BCA and ratings will face downward pressure if there are unfavorable
changes to Malaysia's policy for the oil & gas sector, in turn
resulting in a significant decline in the company's reserves and oil &
gas entitlement. A large debt-funded acquisition or further
increase in shareholder payments, without an offsetting improvement
in earnings, could also put pressure on the ratings.
Credit metrics indicative of downward pressure on the ratings include
retained cash flow/net debt below 45%-50%,
adjusted debt/capitalization above 30%-35% and EBIT/interest
expense below 12x-13x.
A downgrade of the sovereign rating would also result in a downgrade of
the company's ratings.
The methodologies used in these ratings were Global Integrated Oil &
Gas Industry published in October 2016 and Government-Related Issuers
published in June 2018. Please see the Rating Methodologies page
on www.moodys.com for a copy of these methodologies.
Petroliam Nasional Berhad (PETRONAS) is a 100% Malaysian government-owned
oil and gas company, with operations spanning upstream oil &
gas exploration and production, downstream oil refining, marketing
and distribution of petroleum products, as well as trading in oil,
petroleum and petrochemicals products.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vikas Halan
Senior Vice President
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
