Media
Statement by Yeo Bee Yin, DAP Social Media Strategist and ADUN for Damansara
Utama on Friday, 2 August 2013 in Petaling Jaya.
Fitch
revision on the Outlook of Petronas Long-Term Local Currency Issuer Default
Rating to ‘Negative’ from ‘Stable’ serves as a reminder to Putrajaya so not to kill goose that lays the golden eggs.
Fitch
Ratings has revised the Outlook on Petronas Long-Term Local Currency Issuer
Default Rating (IDR) to ‘Negative’ from ‘Stable’ on 31 July 2013, just a day
after the country’s downgrade and not long after the downgrade of its Outlook
on Foreign Currency IDR in September 2012. Now, its Outlook on both Foreign-
and Local Currency IDR are ‘negative’ - lowering Petronas ability to raise
capital in the future, both in the local and foreign currency credit markets.
Although
Petronas maintains a strong standalone credit profile and Fitch believes that
it is Malaysia’s strongest foreign currency debtor, the government influence
over its cash flow, financial policies and strategies have apparently impacted
its credit ratings as shown by the Fitch downgrades.
Fitch
rating is sensitive to post-investment cash flow, which is defined as cash flow
from operations less capital expenditure, acquisitions and dividend. For
Petronas, the dividend is paid to the government but the dividend payout ratio
is not capped, i.e, the government has the authority to decide on how much to
‘withdraw’ from Petronas every year. As of now, more than 50 percent of
Petronas net profit is paid as dividends to the government, well above the
average of 38 percent paid by national oil companies around the
world. When the dividend payout is high, post-investment cash flow
reduces, lowering Petronas ability to serve debts and hence affecting its
Fitch rating.
In terms
of financial implication, in time of good economy, Petronas high dividend
payout translates into less investment in oil exploration activities to maintain
its reserve replacement ratio (reserve added to the company relative the amount
produced), which is crucial for the long-term survival of an oil and gas
company. Furthermore, in bad economy, usually in
times of simultaneous falling oil prices and profits, Petronas is vulnerable to
be forced to increase its dividend payout and to be treated like a
piggy bank. In the event that Petronas
does not have sufficient cash reserves, it will need to turn to the credit
markets to raise fund. The credit markets impose interest rates based on the
credit ratings, which will potentially be downgraded then due to increased
dividend payout. Higher interest rates will in turn increase Petronas
financing costs.
Therefore,
we call upon the federal government to re-consider the proposal of Petronas in
2011 to cap the dividend payout ratio so it has sufficient cash to reinvest in
oil and gas exploration. In addition, there is a need for the amendment
of Petroleum Development
Act 1974 so Petronas will be accountable to the parliament and not only to the
Prime Minister.
Petronas accountability
to the parliament is especially important in the time of bad economy, when the
dividend payout cap may have to be lifted for bailouts or stimulus for the
overall benefits of the country. The lifting of dividend payout cap should be
debated in the parliament to avoid vested-interest bailout by Petronas, which
as of now, can be solely based on the Prime Minister's preferences
and decisions. Some infamous
Petronas bailouts are the bailout of Bank Bumiputra in 1985 and 1991 as well
as Konsortium Perkapalan Berhad bailout
through MISC in 1997 financial crisis under the reign of Dr Mahathir.
Petronas
long-term survival and its governance are important to ensure the Rakyats can
benefit fully from the natural resources endowed to the country.
Yeo Bee Yin
