Fitch affirms A- rating on Petronas, outlook negative


FITCH Ratings Inc has affirmed Malaysia-based Petroliam Nasional Bhd’s (Petronas) long-term foreign- and local-currency issuer default ratings (IDRs) at A-, with a negative outlook.

The rating agency stated Petronas’ IDRs continue to be capped by Malaysia’s IDRs of A- and negative outlook, as per Fitch’s government-related entities (GREs) rating criteria.

The company is 100%-owned by the state, which exerts significant influence over its operating and financial policies.

“Petronas’ standalone credit profile (SCP), assessed by Fitch at AA-, is stronger than that of its owner, reflecting the company’s very strong financial profile, large scale and integrated oil and gas operations,” Fitch said in a statement last week.

It has also affirmed its short-term foreign-currency IDR at F1, and the ratings on Petronas’ foreign-currency senior unsecured debt and debt issued by Petronas Capital Ltd and guaranteed by Petronas at A-.

Fitch said the national oil company accounted for more than 15% of the Malaysian government’s revenue over the last five years.

As such, Fitch will equalise its ratings with those of the sovereign even if its SCP falls below the sovereign rating, so long as the company sustainably generates more than 10% of government revenue, in line with its criteria for rating GREs.

The rating agency added that Petronas’ SCP remains comfortable as it expects the company to maintain its strong financial profile despite the economic downturn and disruptions following the Covid-19 pandemic.

“We expect Petronas’ upstream volumes to fall by about 4% during 2020 due to weaker demand. Domestic gas sales declined by 17% to 2.43 billion standard cu ft per day during the first half of 2020 (1H20), while upstream volumes fell by 7% to 1.64 million barrels of oil equivalent per day,” it noted.

Fitch also expects Petronas’ liquefied natural gas (LNG), downstream petroleum and petrochemical sales volumes to fall by about 3% in 2020.

It also predicts an economic recovery in the 1H20 to support a revival in demand for gas and petroleum products, while volumes are expected to return to pre-pandemic levels during 2021 although downside risks from the pandemic remain.

Petronas revenue in the second quarter of 2020 (2Q20) fell 42% to RM34 billion from RM59.1 billion in 2Q19, dragged by lower average realised prices for major products and lower sales volume of petroleum products, LNG and processed gas.

For the 1H20, the group’s loss after tax stood at RM16.5 billion, compared to an after-tax profit of RM28.9 billion previously. Excluding impairment loss, the group would have made a profit of RM7.7 billion.

Pretax profit slid 46% to RM29.4 billion from RM54.7 billion a year earlier. Its 1H20 revenue was 23% lower at RM93.6 billion against RM121.1 billion in 1H19.