(The following statement was released by the rating agency)
Sept 13 - Fitch Ratings has affirmed Malaysia-based Petroliam Nasional Berhad’s (PETRONAS) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘A’ and its Short-Term Foreign-Currency IDR at ‘F1’. The Outlook on its Long-Term Foreign-Currency IDR is revised to Negative from Stable. The Outlook on its Long-Term Local-Currency IDR is Stable.
At the same time, Fitch has affirmed PETRONAS’s foreign currency senior unsecured rating at ‘A’, including debt issued by PETRONAS Capital Limited and guaranteed by PETRONAS. PETRONAS Global Sukuk Ltd’s USD trust certificates have also been affirmed at ‘A’.
PETRONAS is 100%-owned by the Malaysian government (‘A-'/‘A’/Stable). Its current Foreign and Local Currency IDRs are constrained by Malaysia’s ‘A’ Country Ceiling and Local Currency IDR, respectively.
Fitch believes PETRONAS remains Malaysia’s strongest foreign currency debtor. The Negative Outlook on its Long-Term Foreign-Currency IDR, however, reflects the likelihood that Fitch will downgrade this rating to the same level as that of the sovereign. Government influence on the company’s cash generation is significant through control of gas pricing. The sovereign has growing influence over the company’s financial policies and strategies and PETRONAS’s dividends continue to be very important to government funding. This weakens the case for rating PETRONAS’s foreign currency obligations above the sovereign foreign currency rating.
Therefore the Negative Outlook on the Foreign Currency IDR reflects the likelihood that Fitch may cap this rating at Malaysia’s sovereign Foreign Currency IDR of ‘A-', rather than at the Country Ceiling of ‘A’.
Fitch notes PETRONAS’s plan to alter its dividend policy to 30% of net profit after tax from a fixed dividend of MYR30bn per year. Fitch also views reforms to address material change in both dividends and gas pricing as unlikely until after a general election (one must be called by end-June 2013). Given the political sensitivity of these reforms, it is unlikely for changes to take place immediately after the election.
“PETRONAS’s financial performance continues to be adversely affected by production issues, declining domestic output and the requirement to sell gas at below market prices but benefits from high oil prices in 2011 and most of 2012,” said Sajal Kishore, Director in Fitch’s Asia Pacific Energy & Utilities team.
What could trigger a rating action?
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
-Upgrade in Malaysia’s Local Currency IDR.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
-Downgrade in Malaysia’s Local Currency IDR and its Country Ceiling,
-PETRONAS’s Foreign Currency IDR may be downgraded to Malaysia’s sovereign FC LT IDR if PETRONAS’s post-investment cash flows (defined as cash flow from operations less capital expenditure, dividends and acquisitions) do not fully cover dividend payments.