Petronas says dividend payments won’t jeopardise ability to service debts

According to the firm, the payments will take into account its ability to fund ongoing operations

By SHAZNI ONG / Graphic By TMR

Petroliam Nasional Bhd (Petronas) said all its dividend payments, including the one-off special dividend and any future dividends, will take into account its ability to service debts.

The state-owned energy company said the dividend payments will take into account its ability to fund ongoing operations and invest in the future growth of the company.

“Petronas refers to the announcement by S&P Global Ratings and Moody’s Investors Service Inc affirming our credit ratings of A- and A1 respectively, subsequent to the announcement of the RM30 billion one-off special dividend payment in Budget 2019.

“The credit ratings affirmation reflects Petronas’ solid financial position that remains robust supported by strong fundamentals, sizeable net cash and ample liquidity position, driven by the transformation efforts in the past few years in the areas of operational efficiency, cost reduction and portfolio optimisation, and supported by improved oil prices,” it said in a statement.

The oil company also said Moody’s ratings outlook change from ‘Stable’ to ‘Negative’ is due to the rating agency’s view that Petronas’ financial profile risked deteriorating if dividend payments remain high in the future.

Meanwhile, Tony Pua — political secretary to the finance minister — said Moody’s revision of Petronas’ outlook from ‘Stable’ to ‘Negative’ is not a downgrade.

He said the move by the rating agency was “unfortunate”, but it had not reached a downgrade level.

“If you read the statement, it says if the government continues to take money like that from Petronas, then it will be downgraded,” he said at a post- Budget 2019 talk organised by AmBank Group in Kuala Lumpur last Friday.

Pua said rating agencies are worried more of such dividend payments would be requested by the government.

“If this year we take, next year we take again, next two three years we take, then it will be credit negative.

“However, our position, the government’s position, is that this is just a one-off. We are using that RM30 billion to pay off the RM37 billion of the Goods and Services Tax and income tax refunds,” he said.

Pua said other credit rating agencies such as Fitch Ratings Inc and S&P understand the widening deficit to pay off the two tax refunds.

“I think what we need to see is the Malaysian ratings with Fitch, Moody’s and S&P are effectively reaffirmed.

“If you read the S&P statement on Petronas, they reaffirmed the rating and they were quite convinced that it was a one-off.

“They also saw that we have a plan to improve our deficit from 3.7% to 2.8% in 2021. They have stated that if we are able to follow this fiscal consolidation exercise, with improved transparency, then we are actually doing very well,” he said.

Pua said Petronas is able to provide the RM30 billion dividend as the oil company has more than sufficient cash reserves.

“They will not give to us if they do not have the cash reserves. The cash reserves will not affect Petronas’ ability to invest in capital expenditure, going forward,” he said, adding that the payment is expected to be made next year.

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

The agency said the rating action came after the government announced that Petronas will pay dividends of RM26 billion in 2018 and RM54 billion (inclusive of a one-off special dividend of RM30 billion) in 2019.

It added that although Petronas could 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.

“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 Moody’s senior VP Vikas Halan.

Former Finance Minister Tun Daim Zainuddin has criticised rating agencies as single-minded in their evaluation of Petronas, claiming that the state-owned oil and gas company is cash capable to help the country narrow its financial gap.

“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 had been in power for 61 years 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,” he said.

On another note, Pua said the government has not decided on the debts to be paid with the proceeds of Tabung Harapan Malaysia.

Pua said there are also “one or two more elephants (projects)” that the government needs to deal with. He, however, declined to elaborate, saying that the minister will make the announcement later.