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KUALA LUMPUR: Fitch Ratings downgraded Petronas’ long-term local and foreign currency issuer default ratings (IDRs) to ‘BBB +’ from ‘A-‘, with a stable outlook.
In a statement today, Fitch said the rating action followed the downgrade of Malaysia’s IDR to ‘BBB +’ from ‘A-‘ on December 4, 2020, with the outlook stable.
The rating agency said Petronas accounted for more than 15% of government revenue over the past five years.
“Fitch will match its ratings to the sovereign’s even if its independent credit profile (SCP) falls below the sovereign rating as long as the company sustainably generates more than 10% of government revenue, in line with our criteria for rating. entities ”, he added.
He noted that the downgrade was due to “strong” sovereign ties, among others, as 100% ownership of the government gave it significant influence over Petronas, although it was less directly involved in the company’s operations, financing and investments. .
“Petronas benefits from exclusive rights to Malaysia’s oil and gas reserves by law. Petronas has not required tangible financial support and we look forward to receiving financial support, if necessary, ”said the rating agency.
Fitch said Petronas’ SCP remains comfortable as it expects the oil company to maintain its strong financial profile despite the economic downturn and disruptions that followed the Covid-19 pandemic.
“We estimate that Petronas upstream volumes will drop around 4% during 2020 due to lower demand. We expect its sales volumes of liquefied natural gas, downstream oil and petrochemicals to fall between 2% and 3% in 2020, ”he added.
Fitch also expects a gradual economic recovery to support the revival in demand for gas and petroleum products and for volumes to return to pre-pandemic levels over the next 12 to 18 months, although downside risks remain.
On the impact of Covid-19, the rating agency expects Petronas earnings before interest, taxes, depreciation and amortization (Ebitda) to fall about 40% in the financial year ending December 31, 2020 from RM87. 4 billion in 2019, affected by weaker demand, low oil and gas prices and weak product spreads.
“Consequently, Petronas’ free cash flow deficit after capex and dividends will expand in 2020, although a plan to cut capex in 2020 should cushion the impact,” Fitch said.
