Saudi Aramco deal will lighten Petronas' capex burden

PETALING JAYA: Fitch Ratings said Saudi Aramco’s acquisition of a 50% stake in Petroliam Nasional Bhd’s (Petronas) Refinery and Petrochemical Integrated Development (Rapid) project is likely to reduce Petronas’ capital expenditure (capex) burden, at a time when its operating cash flow generation has been pressured by weak oil prices.

The rating agency expected investment in the US$16 billion (RM71.2 billion) Rapid project to represent a sharply rising portion of Petronas’ capex through to 2019.

Fitch Ratings, however, said in a statement that there will be no immediate effect on Petronas’ ratings of “AA-”, which remain constrained by the sovereign rating of “A-/Stable”.

“Petronas is fully owned by Malaysia and the government exerts significant influence over its operating and financial policies,” it noted.

Fitch Ratings said Petronas had already announced measures in 2016 to preserve cash flow, including cuts in planned capex and operating expenditure through to 2020 of RM50 billion and a lower dividend of RM13 billion in 2017.

“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 noted.

Rapid 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 3 million tonnes a year of ethylene, propylene and olefin products.

The commissioning of the refinery is 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 require additional capex of US$11 billion, said Fitch Ratings.

Under the joint venture agreement, Saudi Aramco will supply up to 70% 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%, as well as broaden the company’s product range, notably in specialty chemicals.