BAKU, Azerbaijan, April 14
By Leman Zeynalova – Trend:
Malaysia’s PETRONAS company is expected to maintain its strong financial profile with a sustained, but narrowing, net cash position, Trend reports citing Fitch Ratings.
Fitch expects PETRONAS to continue to maintain its net cash position over the next four years albeit with narrowing net cash balances. PETRONAS had readily available cash of MYR123 billion against total debt of around MYR55 billion at end-2019. We expect its free cash flow (FCF) after capex and dividend payments to continue to remain negative in 2020 and 2021, driven by weaker operating cash flows in light of our low oil-price assumptions, capex estimates and continuing dividends. PETRONAS's FCF is likely to improve over 2022-2023 and be neutral to marginally negative, supporting its net cash position.
“We do not expect PETRONAS to cut its domestic capex due to the company's importance to the domestic oilfield service industry, but we estimate overall capex in 2020 to be lower than in 2019. We expect capex of MYR45 billion-50 billion a year over the medium term after 2020, driven by upstream investments, which are critical for the company to arrest falling production at its domestic oil and gas fields and drive growth overseas,” said the rating agency.
PETRONAS's downstream capex will decline (2019: MYR10 billion; 2018: MYR 15 billion) with the completion of its refinery and petrochemical integrated development, or RAPID, project by end-2020. “We do not anticipate any dividends from the project in the next three to five years as it is in its initial operational phase.”
Fitch believes the government will support PETRONAS in maintaining a healthy credit profile due to its importance to national revenue and its expansion to sustain and improve earnings. Consequently, we expect the PETRONAS board to factor in the impact on its financial profile even as it considers the government's additional dividend requests to support COVID-19 stimulus. PETRONAS has declared dividends of MYR24 billion for 2020; the company's net cash position as of end-2019 can support some incremental dividends, though, in our view, any large special dividends like in 2019 are unlikely.
“We expect PETRONAS's dividend payment to fall in 2021 following weak earnings due to low oil prices and declining volumes on the disruptions from the coronavirus. The government has allowed PETRONAS to cut dividends to maintain its financial profile. PETRONAS reduced dividends to MYR16 billion a year in 2016 and 2017 on weaker earnings from lower oil prices. We estimate dividends will rise to around MYR22 billion-25 billion over 2022-2023, subject to crude oil prices and investments.”
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