Petronas likely to lower capex on dividend payout, Rapid completion

Payout unlikely to impact the company’s cash position too severely as it has raised RM26b in bonds this year


PETROLIAM Nasional Bhd’s (Petronas) higher than expected cash outflow of RM34 billion in dividends for the government this year will likely narrow its net cash position on the back of a weaker operating environment and energy prices.

An analyst with a local brokerage firm said, however, the outflow is unlikely to impact the national oil company’s cash position too severely as it raised RM26.04 billion in a multi-tranche senior bond offering in April this year which will act as a buffer for any financial shock.

“Petronas is likely to maintain their upstream capital expenditure (capex) or just a see a slight drop.

“The reduction in capex is also likely to come from downstream business with the completion of the Refinery and Petrochemical Integrated Development (Rapid) project. They had a net cash position of more than RM60 billion as of the second quarter this year (2Q20),” the analyst told The Malaysian Reserve (TMR) ahead of the Budget 2021 announcement today.

Petronas returned to the international bond market in April 2020 with the group’s first bond sale since a US$5 billion (RM20.75 billion) offering in March 2015.

The company came to the market as crude oil prices were sluggish due to bearish demand-supply fundamentals triggered by the impact of the Covid-19 pandemic on global economic activity.

The analyst further added that the national oil company is in no hurry to liquidate assets to sustain long-term dividend payout to the government.

“Having said that, it is not surprising if they are looking to monetise their crown jewel, Petronas Carigali Sdn Bhd (PCSB),” added the analyst.

However, he noted that a right valuation in a depressed oil price environment could prove a challenge and potentially cap Petronas’ ability to negotiate fair pricing.

Last year, former Prime Minister (PM) Tun Dr Mahathir Mohamad floated the idea of listing the PCSB.

Potential PSCB IPO could be equated to the listing exercise of oil and gas behemoth company Saudi Aramco on the Saudi Tadawul, which emerged as the largest listed company in the world, topping Microsoft Corp, Apple Inc and Alibaba Group Holding Ltd.

Hong Leong Investment Bank Bhd analyst Low Jin Wu opined that Petronas’ current operating cashflow would be able to sustain its proposed dividend payments if oil price (Brent) averages above US$50 (RM207.50) per barrel in the financial year of 2021 (FY21) and FY22.

“If oil prices were to remain below US$45 per barrel, Petronas would most likely make up for the shortfall by reducing its exploration and production capex as Petronas would try to minimise its cuts on operational expenditures,” said Wu.

He added that Petronas would possibly halt or defer projects which have not reached its final investment decision to optimise its cost spread.

The research firm also noted that favourable global oil price (Brent) could also extend strong earnings and dividend-paying capability for the group.

“We opine that there are minimal risks if oil price (Brent) averages above US$50 per barrel in FY21 and FY22. We believe the instance of abnormally low oil prices in 2Q20 is unlikely to repeat itself going forward,” said Wu to TMR.

The national oil company paid RM54 billion in dividends in 2018 including a special dividend of RM30 billion channelled to the then Pakatan Harapan (PH) government to help pay the outstanding Goods and Services Tax refund owed to businesses in FY18 and RM24 billion in dividends for FY19.

Last Monday, Minister in the PM’s Department (Economy) Datuk Seri Mustapa Mohamed said Petronas will pay RM34 billion in dividends to the federal government this year, despite the company posting a loss in 2Q20.

Mustapa replied to a question raised by MP Pang Hok Liong (PH-Labis) on Petronas, if the oil company could honour its dividend payout to the state after suffering a loss of RM21 billion in 2QFY20 ended June 30, 2020.