Credit rating agencies have a fixed mind, says Daim

Petronas has sufficient financial space to support dividend payments


Tun Daim Zainuddin (picture) has criticised rating agencies as single-minded in their evaluation of Petroliam Nasional Bhd (Petronas), claiming that the state-owned energy company is cash capable to help the country narrow its financial gap.

The government had announced that Petronas would make a RM30 billion one-off special dividend payment as Putrajaya seeks to shore up its financials battered by the over RM1 trillion debt.

But the markets are worried that the one-off dividend would hurt Petronas’ balance sheet and welcome revision of the government-owned company’s creditworthiness by rating agencies.

The former finance minister said Petronas has sufficient financial space to support the dividend payments.

“The problem with rating agencies is they have a fixed mind. You do this, therefore it is wrong. We have to explain to them that the circumstance here is special.

“Nowhere in the world (can you find) a government who has been in power for 61 years and was toppled by the Opposition, who has no experience in running the country. They had also left the country in a mess. So, you must give the present government the opportunity to clear it up.

“They are not robbing anything from Petronas. They’ve discussed this with them and Petronas said they could afford it.

“So, why should they criticise when the company itself said they can handle it? Who knows better about the company than the management itself?”

Daim was speaking to the media at the Affin Hwang Capital Conference Series 2018 in Kuala Lumpur (KL) yesterday.

Moody’s Investors Service yesterday said it affirmed Petronas’ A1 rating, but changed the outlook to ‘Negative’ from ‘Stable’.

The rating agency also affirmed the ratings for three debts papers — the A1 rating for the senior unsecured notes issued by Petronas Capital Ltd; A1 for the US$15 billion (RM62.43 billion) medium term note (MTN) programme set up by Petronas Capital and A1 on the sukuk issued through Petronas Global Sukuk Ltd. All these debt instruments are guaranteed by Petronas.

The agency said the rating action came after the government announced that Petronas will pay dividends of RM26 billion in 2018 and 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 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,” said Vikas Halan, a Moody’s senior VP.

“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.”

For the first half of this year, the state-owned energy company posted a net profit of RM26.6 billion compared to the RM17.3 billion recorded a year ago. Revenue rose to RM117.2 billion, up 8% from RM108.1 billion previously.

Petronas’ cash reserve and equivalent is estimated to be around RM173.9 billion as of June 30 this year, according to its financial statement.

Oil prices had risen to highs last seen before the great oil bust of 2014, rising to US$86 a barrel recently, boosting Petronas’ revenues.

Meanwhile, the influential Daim said the government is looking at ways to reduce the profit gap between farm gate and retail food prices, subsequently trimming the cost of living.

He said a study is underway to gauge the feasibility of stabilising food prices and potentially bringing down the prices of goods.

“We are working on it. I am supposed to get a report on it today (Nov 8). We will study the report and see if it can be done.

“If we can stabilise the price of essential food, that is good enough because that is what the government promised in their manifesto.

“But if they can reduce it, of course that would be better. The chances of reducing the prices are there, but we need a lot of effort and teamwork. Everyone must work together.

“Consumer associations must also be active to keep the government on their toes,” he said.

Earlier at the conference, Daim said there must be a reason why the cost of living has not come down despite the many measures taken to reduce prices.

“Fishermen said they have worked hard, but all they get is RM4.50 and when it comes to KL, it is RM22. There is a RM17 gap there.

“Who is benefitting from this? The one that is suffering are the fishermen and the one that is spending a lot of money is you,” he said.

“Maybe (in my career) I failed in one area, which is to help the poor. That is why today, a lot of Malaysians feel they do not have what they expect to have in this country — housing and better education.

“The most important thing now is to ensure that the gap between the rich and poor is narrowed,” said Daim.