Petronas' financing cost may inch up after Moody's credit rating downgrade

KUALA LUMPUR: Petroliam Nasional Bhd’s access to financing remains unimpeded although the cost may inch up slightly because of a Moody’s Investors Service downgrade, said economists.

On Friday, Moody’s downgraded Petronas’ 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.

Petronas’ link to the government had created potential for interference that may have a negative impact on its business profile or cash flow, it added.

Sunway University Business School economics professor Dr Yeah Kim Leng said the A2 was still a solid rating.

“Its rating remains a notch above the country’s sovereign rating,” Yeah told the New Straits Times today.

Bank Islam chief economist Mohd Afzanizam Abdul Rashid said Moody’s continued to reiterate its opinion that Petronas rating would remain one notch above the sovereign rating.

He said strong credit metrics, low dependence on the domestic economy and superior access to the international capital were the main factors that support the present ratings.

However, he said close credit linkages between Petronas and the government was evident.

The government’s dependence on petroleum revenue and its policies on oil and gas sector could also affect the Petronas’ business and financial risk profiles.

“In that sense, over reliance on Petronas coffers by the government could have material impact to the prevailing rating,” he said.

Putra Business School associate professor Dr Ahmed Razman Abdul Latiff said while its credit ratings had been downgraded which would increase its borrowing cost, Petronas fundamentals were still strong. The group still recorded higher revenue and profit in the first quarter of 2019.

“The reason for its downgrade can be rectified or managed by the government since the main reasons for it due to uncertainties related to future high dividend request and impending discussion on Malaysia Agreement 1963.

“If the government can give assurance that it will not resort to high dividend request in the future and safeguard Petronas interest under Malaysia Agreement 1963, there will be no reason for its credit rating to be restored to its original position,” he said.

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