KUALA LUMPUR: Moody's Investors Service has downgraded Petroliam Nasional Bhd’s domestic issuer and foreign currency senior unsecured ratings to A2 from A1.
Moody’s also changed the national oil company’s ratings outlook to stable from negative.
The firm said Petronas’ link to the government had created potential for interference that may have a negative impact on its business profile or cash flow.
"Even though Petronas' credit metrics remain strong for its ratings, the close credit linkages between the government of Malaysia (A3 stable) and Petronas cannot support a rating for Petronas, under the revised methodology, that is two notches higher than the Malaysian sovereign," Moody's senior vice president Vikas Halan said in a statement today.
"However, Petronas' strong credit metrics, its low dependence on the domestic economy -- with 70 per cent of its revenue generated through exports and overseas -- and its superior access to the international capital markets, mean its ratings can be maintained one notch above the sovereign rating," Halan added.
Moody’s said Petronas’ ratings could face downward pressure if there were unexpected changes to Malaysia's policy for the oil and gas sector that result in a significant decline in its reserves and oil and gas entitlement.
A large debt-funded acquisition could also pressure the ratings, it added.
An upgrade of the ratings to A1 will require an upgrade of the government's rating to A2.
In addition, an upgrade will require Petronas to maintain a credit profile that continues to support higher ratings.
Based on Moody's oil price assumption of US$50-US$70 per barrel through 2020, it expects credit metrics of Petronas to continue to be stronger than the level required to maintain its A2 ratings.
“More specifically, over the next two to three years, Moody's expects Petronas to be able to maintain a net cash position of RM60-RM65 billion, adjusted debt/ EBITDA of below 1.0x and total debt/total capitalisation in the range of 15-20 per cent against its downgrade threshold of 30-35 per cent,” it added.
Moody’s said the close credit linkages were evidenced by the government's 100 per cent ownership of Petronas, the fact that about two-thirds of Petronas’ assets, production and reserves are based in Malaysia and the government's dependence on the petroleum sector for nearly 20 per cent of its revenue (excluding special dividends).
Moody’s noted that in November 2018, the government had announced that Petronas would pay one-off special dividends of RM30 billion to fund certain tax refunds.
“The ongoing review of the implementation of the Malaysia Agreement of 1963 (MA63), could provide more rights to the states of Sabah and Sarawak over their natural resources and oil and gas reserves.
“Implementation of this will require changes in the Petroleum Development Act of 1974 (PDA 1974). The impact and timing of such changes for Petronas remain uncertain at this stage,” Moody’s added.