(File pix) Moody's Investors Service has affirmed the A1 domestic issuer and foreign currency senior unsecured ratings of Petroliam Nasional Bhd (Petronas), reflecting the company's standalone credit quality as captured in its a1 baseline credit assessment (BCA).

KUALA LUMPUR: Moody's Investors Service has affirmed the A1 domestic issuer and foreign currency senior unsecured ratings of Petroliam Nasional Bhd (Petronas), reflecting the company's standalone credit quality as captured in its a1 baseline credit assessment (BCA).

The credit rating agency said the a1 BCA is supported by Petronas’s large-scale hydrocarbon reserves, strong financial metrics, conservative financial policies and solid liquidity profile.

At the same time, Moody's has also affirmed the A1 rating on the senior unsecured notes issued by Petronas Capital Ltd and guaranteed by Petronas, the (P) A1 rating on the $15 billion medium-term note (MTN) programme and the A1 rating on the sukuk issued through Petronas Global Sukuk Ltd. 

“The affirmation of Petronas’ ratings reflects our expectation that the company will maintain its strong operating profile, credit metrics and liquidity as it continues to generate free cash flow in an improved oil 

price environment and as it nears the end of its capital spending cycle,” Moody's senior vice president Vikas Halan said.

The ratings agency added that Petronas’ integrated refining and petrochemical project (RAPID) in Johor, Malaysia, will complete by the first-quarter 2019.

 

Petronas has already sold a 50 per cent stake in the project to Saudi Arabian Oil Company, thus further reducing its capital spending.

Consequently, this has started generating significant

free cash flow.

“However, potential 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,” Halan, who is also Moody's lead analyst for Petronas, said.

Halan expect Petronas to have the financial flexibility to reduce dividends and capital spending to minimise any adverse impact on its credit profile.

Moody’s said Petronas’ financial profile and liquidity position are stronger than those of its higher rated global peers, and it thus has a cushion to absorb some deterioration in its credit metrics before its ratings face downward pressure.

It noted that Petronas’ gross financial leverage, as measured by its total debt/EBITDA, improved to 0.7 times for the twelve months ended March 2018 from about 1.0 times for 2016.

 

“We expect Petronas to maintain its gross financial leverage below 0.8 times -1.0 times for the next two to three years.”

It said Petronas’ total debt/ total capitalisation also remains conservative at below 15 per cent as of March 2018, hence, it expects this to be maintained at 15 per cent – 20 per cent over the next two to three ears as compared to its downgrade threshold of above 30 per cent to 35 per cent.

Moody’s said Petronas’ net adjusted cash position, which has increased to RM90 billion as of 31 March 2018 compared to RM42.8 billion on 31 December 2016, will likely be maintained at a level of RM80-100 billion over the next two to three years.

This was based on Moody's current oil price assumption of $45-65 per barrel through 2019 and also incorporating expectation of gradual increase in dividends to the government to RM25 billion by 2020.

“Our 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, which translates to strong incentives for 

government to provide support.”

Moody’s said Petronas’ foreign currency rating is two notches above Malaysia's foreign currency bond rating, based on its extremely strong standalone credit profile, a high proportion of revenue from exports and international operations; a high degree of financial flexibility and a long track independent operation.

The stable outlook on the rating reflects Moody's expectation that Petronas maintain its strong credit profile over the next 12-24 months, while continue to adjust its spending on operating and capital expenditure to protect its financial position.