KUALA LUMPUR, Aug 20 — Moody’s Investors Service has affirmed the A1 domestic issuer and foreign currency senior unsecured ratings of Petronas.

It also affirmed the A1 rating on Petronas’ guaranteed senior unsecured notes issued by Petronas Capital Ltd, the (P)A1 rating on the US$15 billion (RM61.4 billion) medium-term note programme set up by Petronas Capital Ltd which was also guaranteed by Petronas and the A1 rating on the sukuk issued through Petronas Global Sukuk Ltd.

“The ratings outlook is stable. The affirmation of the ratings reflects our expectation that the company will maintain its strong operating profile, credit metrics and liquidity as it continues to generate free cash flow in an improved oil price environment and as it nears the end of its capital spending cycle,” said Moody’s Senior Vice-President Vikas Halan in a statement today.

Moody’s said the national oil company’s integrated refining and petrochemical project (RAPID) in Johor would be completed by the first quarter of 2019.

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Petronas, it said, had already sold a 50 per cent stake in the project to a Saudi Arabian oil company, further reducing its capital spending and resulted in the company beginning to generate significant free cash flow.

“However, potential changes to the government’s policies for the oil and gas (O&G) sector could affect Petronas’ position as the sole owner of the country’s petroleum resources and increase the royalties paid on its upstream O&G production.

“While these changes could be credit negative for Petronas, their implementation will take time and we expect the company to have the  financial flexibility to reduce dividends and capital spending to minimise any adverse impact on its credit profile,” said Halan, who is also Moody’s lead analyst for Petronas.

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Moody’s said Petronas’ financial profile and liquidity position was stronger than those of its higher-rated global peers and it can cushion any deterioration in its credit metrics before its ratings face downward pressure.

The company’s total debt-to-total capitalisation also remained conservative at below 15 per cent as of March 2018 and the rating agency expected this to be maintained at 15-20 per cent over the next two-three years compared with its downgrade threshold of above 30-35 per cent.

“The stable outlook on the rating reflects our expectation that Petronas will maintain its strong credit profile over the next 12-24 months.

“It further reflects the expectation that the company will continue to adjust its spending on operating and capital expenditure to protect its financial position,” Moody’s added. — Bernama