Fitch: Aramco's entry will cut Petronas capex burden

Kuala Lumpur: Saudi Arabian Oil Co's (Saudi Aramco) 50 per cent stake in selected ventures and assets of Petroliam Nasional Bhd's (Petronas) Malaysian downstream project is likely to cut its capital expenditure (capex) burden, Fitch Ratings said.In a statement Thursday, the rating agency, however, said there will be no immediate effect on Petronas' ratings, which remained constrained by the sovereign rating (A-/Stable).

Petronas is fully-owned by the Malaysian government and it exerts significant influence over the oil company's operating and financial policies.

Fitch said the transaction with the Saudi national oil company, if completed, will help reduce Petronas' committed capex requirements at a time when the company's operating cash flow generation has been pressured by weak oil prices.

It expected investment in the US$16 billion (US$1 = RM4.45) Refinery and Petrochemical Integrated Development (RAPID) project to represent a sharply rising portion of Petronas' capex through to 2019.

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"The project consists of a refinery with a capacity of 300,000 barrels of oil equivalent a day, a naphtha cracker plant and other petrochemical facilities with a combined production capacity of three million tonnes a year of ethylene, propylene and olefin products," it said.

Fitch said the commissioning of the refinery was targeted for early 2019, with the associated petrochemical plants phased in over time.

"Other facilities associated with the RAPID project, covering electrical and water supplies as well as a liquefied natural gas import terminal and a regasification terminal, will need additional capex of US$11 billion," it said.

It said in addition to its 50 per cent stake, Saudi Aramco will also supply up to 70 per cent of the refinery's crude feedstock requirements, while natural gas, power and utilities will be supplied by Petronas.

Once completed, RAPID will increase Petronas' refining and petrochemical capacity by around 50 per cent, as well as broaden the company's product range, notably in specialty chemicals, it said.

Petronas, which continued to maintain a strong standalone credit profile of 'AA-', had already announced measures in 2016 to preserve cash flow, it said.

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It said these included cuts in planned capex and operating expenditure through to 2020 of RM50 billion and a lower dividend of RM13 billion in 2017 compared to last year's RM16 billion.

"The company's financial flexibility remains strong despite significant medium-term capex and dividend payments and includes a robust net cash position and conservative through-the-cycle leverage and coverage ratios," it said. – Bernama

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