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Moody's affirms Petronas' A2 rating with stable outlook 

25/05/2022 10:25 PM

KUALA LUMPUR, May 25 (Bernama) -- Moody’s Investors Service has affirmed the A2 local currency issuer and foreign currency senior unsecured ratings of Petroliam Nasional Bhd (Petronas).

Moody’s has also affirmed the a2 Baseline Credit Assessment (BCA) of Petronas; an A2 rating on the senior unsecured notes issued by Petronas Capital Ltd and guaranteed by Petronas; the A2 rating on the senior unsecured notes issued by Petronas Energy Canada Ltd (PECL) and guaranteed by Petronas; and (P) A2 senior unsecured ratings on the $15 billion (Singapore dollar $1=RM3.19) medium-term note programme set up by Petronas Capital Ltd and PECL, and guaranteed by Petronas.

The rating outlook remains stable with Petronas' A2 rating reflecting its large-scale hydrocarbon reserves and prudent financial management. 

“The rating affirmation reflects our expectation that the company will maintain strong credit metrics and excellent liquidity through the oil price cycle,” said Moody’s analyst Hui Ting Sim in a statement today.

According to the statement, the stable outlook is in line with the stable outlook on Malaysia’s rating.

Petronas’ stable outlook is underpinned by the company’s large cash balance that enables its credit profile to withstand periods of heightened oil price volatility or increased cash outflows due to higher capital spending or payments to the government in the form of dividends, royalties and taxes, it said.

Moody’s expects Petronas’ credit metrics to remain strong for its A2 rating under the agency’s medium-term Brent price assumption of US$50-$70 per barrel. 

The company will continue to maintain a net cash position and generate earnings before interest, taxes, depreciation, and amortisation (EBITDA) of RM90 billion to RM110 billion. 

Moody’s estimates that Petronas’ adjusted debt/capitalisation will be around 21 per cent-22 per cent and adjusted earnings before interest and taxes (EBIT)/interest at around 14x-19x. 

“Should Brent prices remain around US$100 per barrel, the agency estimates Petronas’ EBITDA will increase to around RM140 billion to RM150 billion in 2022, from close to RM100 billion in 2021,” it said.

Petronas’ capital spending will likely be RM40 billion to RM50 billion this year, an increase from around RM34 billion in 2021. 

The higher capital spending will allow the company to arrest production decline as well as fulfil its diversification ambitions, it said. 

Petronas’ chemical subsidiary, Petronas Chemicals Group Bhd, announced in May that it will acquire Perstorp Holding AB (B3 stable) for €1.538 billion (€1=RM4.68). 

The transaction is fully funded by cash on hand and is aligned with Petronas’ stepping out strategy of expanding its capabilities in the speciality chemicals segment.

According to the Malaysian government’s (A3 stable) most recent budget announcement, the company will pay RM25 billion of dividends in 2022. 

However, it said that requests for higher dividend payments by the government, especially if there were an increase in the government’s funding needs, cannot be ruled out.

“Nevertheless, higher oil prices supporting cash flow generation at its large upstream operations this year will cushion the impact should such requests occur.

“Petronas has also demonstrated its ability to adjust its capital spending to minimise negative free cash flow if needed,” said Moody’s.

Petronas has excellent liquidity, as of Dec 31, 2021, the company was in a net cash position amounting to RM67 billion, the statement noted.

Petronas’ issuer rating is one notch above Malaysia’s A3 foreign-currency issuer rating, based on the company’s robust standalone credit quality; its high proportion of revenue (73 per cent in 2021) generated from exports and international operations, and its superior access to international capital markets. 

The company’s higher-than-sovereign rating also incorporates the government’s long track record of allowing Petronas to operate independently, despite its 100 per cent ownership.

However, Moody’s said Petronas’ BCA of a2 is constrained at no more than one notch above Malaysia’s sovereign A3 rating. 




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