cash flow


Moody’s affirms Petronas’ ‘A1’ rating

PETALING JAYA: Moody's Investors Service which affirmed Petroliam Nasional Bhd's (Petronas) 'A1' rating, today flagged potential changes in government policies for oil and gas sector as credit negative for the group, which is currently being challenged as the sole owner of the country's oil and gas resources.

The Sarawak government is making a play for direct authority over oil and gas resources in the state. In July, the Gabungan Parti Sarawak-led State Assembly passed the Oil Mining (Amendment) Bill 2018 which requires only one licence for exploration, prospecting and mining of oil and gas.

After Petronas failed in June to get the courts to declare it as the sole owner and authority of oil and gas resources in the country, it has been silent on the matter.
The federal government has thus far not weighed in on the issue.

Moody's senior vice-president Vikas Halan said in a statement that potential changes to government's policies for the oil and gas sector could affect Petronas' position as the sole owner of the country's petroleum resources, and increase the royalties paid on its upstream oil and gas production.

“While these changes could be credit negative for Petronas, their implementation will take time and we expect the group to have the financial flexibility to reduce dividends and capital spending to minimise any adverse impact on its credit profile,” Halan said.

Nevertheless, he said Petronas' financial profile and liquidity position are stronger than those of its higher rated global peers, and it thus has a cushion to absorb some deterioration in its credit metrics before its ratings face downward pressure.

Petronas' gross financial leverage, as measured by its total debt/ earnings before interest, taxes, depreciation, and amortisation (ebitda), improved to 0.7 times for the 12 months ended March 2018 from about 1.0 times for 2016.

Moody's said it expects Petronas to maintain its gross financial leverage below 0.8 times-1.0 times for the next two to three years.

The company's total debt/ total capitalisation remains conservative at below 15% as of March 2018 and Moody's expects this to be maintained at 15% to 20% over the next two to three years compared to its downgrade threshold of above 30% to 35%.

The company's net adjusted cash position, which had increased to RM90 billion as of March 31, 2018 from RM42.8 billion on Dec 31, 2016, will likely be maintained at a level of RM80 billion to RM100 billion over the next two to three years based on Moody's current oil price assumption of US$45 to US$65 per barrel through 2019.
Moody's said this also incorporates its expectation of gradual increase in dividends to the government to RM25 billion by 2020.

The rating agency has affirmed the A1 rating on the senior unsecured notes issued by Petronas Capital Ltd, the (P) A1 rating on the US$15 billion (RM61.6 billion) medium-term note programme and the A1 rating on the sukuk issued through Petronas Global Sukuk Ltd.

Moody's said the rating affirmation indicates that the group will maintain its strong operating profile, credit metrics and liquidity as it continues to generate free cash flow in an improved oil price environment and as it nears the end of its capital spending cycle.

Moody's said the stable outlook also reflects its expectation that Petronas will maintain its strong credit profile over the next 12 to 24 months. It further reflects Moody's expectation that the group will continue to adjust its spending on operating and capital expenditure to protect its financial position.

The national oil company's rating is supported by its large-scale hydrocarbon reserves; strong financial metrics; conservative financial policies; and solid liquidity profile.

Hess’ Southeast Asian oil & gas assets draw interest

SINGAPORE: The Southeast Asian offshore natural gas assets of US oil and gas producer Hess Corp, estimated to be worth as much as US$5 billion (RM22.05 billion), have attracted takeover interest from firms including Thailand's PTTEP PCL and Austrian energy group OMV AG, people familiar with the matter said.

Hess, which has a collection of gas fields in North Malay Basin in offshore Malaysia and in the Malaysia-Thailand Joint Development Area (JDA) with 50% equal partner Petroliam Nasional Bhd (Petronas), has not yet decided whether to sell the assets, according to financial and industry sources.

Their estimated market value would be US$4 billion to US$5 billion, the sources said. They declined to be identified because the takeover interest had not previously been made public.

The interest in Hess' assets, among the few long-term and sizeable projects in the region, comes as cashed-up firms such as PTTEP are buying overseas assets, while the likes of OMV and Kuwait Foreign Petroleum Exploration Co have been scouring for acquisitions in Asia.

Hess, which hasn't reported a profit since 2014, has been under pressure from investors to make money. It posted a smaller-than-expected loss in April-June, but many of its peers have turned profitable after the oil price crash two years ago, fuelling questions as to why Hess has not followed suit.

The firm is developing large offshore oil projects in South America and US shale oil. In 2014, it sold its Thai assets to PTTEP for US$1 billion and also sold its Indonesian assets.

“We don't comment on rumours but we continue to believe that our Malaysia assets are an important part of our portfolio and our value creation strategy,” Hess spokeswoman Lorrie Hecker said in a statement.

“JDA and North Malay Basin are significant long-term, low-cost cash generators, producing stable production and free cash flows, which provide funding for our compelling, long-term opportunities in Guyana and the Bakken (in the United States).”

“A number of parties have looked (at the Hess assets) and have teams working on this,” said one financial source.

“Increasing numbers of companies believe a sale is probable,” said the person, adding that Hess' project would also appeal to private-equity backed players and mid-sized energy firms.

He said PTTEP was working with a financial adviser for its interest in the assets.

Another source said some parties had done preliminary work on the assets and were waiting to see if Hess would start a sale process.

OMV and Kuwait Foreign Petroleum Exploration Co declined to comment.

This month, OMV won regulatory approval to buy Royal Dutch Shell's upstream assets in New Zealand for US$578 million. OMV said in March that the acquisition was a key step to develop Australasia into a core region in line with its new strategy.

Petronas declined comment while PTTEP said it was focused on expanding in Southeast Asia.

“PTTEP is interested in M&A deals with particular focus on assets located in PTTEP's region of experience such as South East Asia, which is PTTEP's areas of expertise and the operating risk is moderately low,” the Thai company told Reuters, declining to comment specifically on Hess assets.

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MOSCOW: Stiff new US sanctions against Russia would only have a limited impact on its oil industry because it has drastically reduced its reliance on Western funding and foreign partnerships and is lessening its dependence on imported technology. Western sanctions imposed in 2014 over Russia’s annexation of Crimea have already made it extremely hard for […]

FMM, ACCCIM cry foul over four-month wait for GST refunds

PETALING JAYA: The country's two largest business bodies, the Federation of Malaysian Manufacturers (FMM) and the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM), are both protesting against the more than four-month long wait for goods and services tax (GST) refunds, citing cash flow constraints, especially with the year-end approaching and payment difficulties.

Finance Minister Lim Guan Eng said in a statement on Wednesday the government will repay the RM19.4 billion outstanding GST refunds to 121,429 companies and individuals from next year.

FMM president Datuk Soh Thian Lai told SunBiz that if the government could not refund GST input tax claims in the near term, it should be more specific on the payment schedule. He thinks FMM members' claims alone could account for at least RM1 billion.

“We are concerned over this, (because) based on 100 members' responses to our survey, it was already RM220 million and yesterday one company sent … (its claim) … which was already an additional RM45 million … if you add up (claims of) our 3,000 members, the figure could go into billions, or at least RM1 billion,” he explained.

Soh said the delay in GST refunds and the implementation of the new sales and services (SST) come Sept 1 will be a double blow for manufacturers, which will affect their cash flows and lead to payment difficulties, among others.

He said small and medium enterprises (SMEs) should be given priority in GST refunds for that reason.

FMM is awaiting a response to a letter it sent to the Finance Ministry two days ago on a detailed action plan to solve the issue of unpaid GST refunds.

The manufacturers body is of the view that the government should be more specific on its payment schedule, such as when it will be done, whom or which industries will be refunded first, will it be the SMEs or the MNCs, and how the money will be paid.

“Our wish is that they pay before SST (is implemented). If they are not able to do so, they should come up with the schedule (for payment),” Soh said.

Echoing his sentiment, ACCCIM chairman of SMEs and human resource development committee Koong Lin Loong said the refund is “obviously too late” and may affect businesses' cash flow and the overall business ecosystem.

With the year-end approaching, some businesses, he said, will require more money for their seasonal sales.

For the easier and straightforward cases, the refunds should be done sooner.

While acknowledging the need for the authorities to make checks to avoid fraudulent claims, Koong said the authorities can speed up the process by publishing a checklist on the documentation requirements for the refunds.

“They should tell business owners to get ready with the minimum documents and ask them to come forward and submit their documents on a voluntary basis,” he said.

This, he added, will also expedite the documents screening process.

Meanwhile, the finance minister's special officer, Tony Pua, was quoted as saying in an interview with TV3 that the money needed for GST refunds will be included in Budget 2019.

He said the government is mulling the introduction of new taxes to raise money for the refunds. Pua, however, gave the assurance that the new taxes will not burden the B40 (bottom 40% of household income) group.

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Investors move cautiously back as the dust settles

KUALA LUMPUR: Foreign investors are slowly gaining confidence in the local equity market as Pakatan Harapan government’s policies and direction become clearer as its 100 days milestone approaches, Rakuten Trade Sdn Bhd head of Research Kenny Yee said. He said the benchmark FTSE Bursa Malaysia KLCI ended the week at 1,805.75, 141.89 points higher compared […]

Finance Minister to propose open inquiry into ‘missing’ RM18b for GST refunds

PETALING JAYA: In an intensifying he-said-she-said situation, Finance Minister Lim Guan Eng said he will propose an open inquiry headed by independent professionals into RM18 billion in goods and services tax (GST) refunds owing to businesses, after former prime minister and finance minister Datuk Seri Najib Abdul Razak stated that the money could have been spent by the new government.

The proposal will be put forward to Prime Minister Tun Mahathir Mohamad and the Cabinet once Treasury Secretary-General Datuk Seri Ismail Bakar completes an internal inquiry into the matter.

“The Ministry of Finance will also cooperate with any authorities investigating this matter,” Lim said in a statement issued on Saturday.

Najib's statement came after Royal Malaysian Customs Director-General Datuk Seri Subromaniam Tholasy said last Friday that only RM63.5 billion of the RM82.9 billion claims made by taxpayers over the period from April 1, 2015 to May 31, 2018 had been deposited into the GST Refund Trust Account, set up for refund purposes, from the Consolidated Revenue Account despite requests made by Customs for the funds at monthly trust account meetings.

He reiterated that the fund is short of the RM19.4 billion, it needs to make refunds for claims made.

According to Lim, the RM19.4 billion owing consists of RM9.2 billion claimed from 2016, RM6.8 billion from 2017, RM2.8 billion from 2016 and RM600 million from 2015.

According to him, provisions under the Financial Procedure Act 1957 allow only the Finance Minister to authorise the payment of all or part of the monies of the fund into the Consolidated Revenue Account in the Federal Consolidated Fund.

“Did Najib give authority to Tan Sri Dr Mohd Irwan Serigar Abdullah not to transfer RM18 billion into the GST Refunds trust account? Like his former boss, the former Treasury secretary-general has also not been completely truthful with the facts when he claimed that all GST payments are made into the Consolidated Revenue Account, but did not explain why he refused to transfer RM18 billion into the GST Refund Trust Account,” he said in the statement.

Separately, the Federation of Malaysian Manufacturers (FMM) urged the government to review and close cases related to the refunds before the new sales and services tax (SST) comes on board on Sept 1. According to the body, 100 companies FMM surveyed in July said the outstanding amount of refunds they were yet to receive stood at over RM220 million.

Considering its member base of over 3,00 companies, the amount of refunds overdue could be bigger, FMM said in a statement on Friday.

FMM said delays in refunds have caused serious cash flow issues to its members, especially among small and medium enterprises, while also continuing to hurt exporters.

“While we appreciate the Minister of Finance's candid and transparent announcement that the government owes businesses RM19.4 billion in GST refunds, FMM hopes for the approved refunds to be channelled back to members soonest possible.

“We would also like to urge the government to ensure that all pending cases on special sales tax refunds dating back to the GST era since 2015 are reviewed and closed before the SST 2.0 is implemented. We urge the Ministry of Finance to have a dialogue with stakeholders affected by the outstanding GST-related refunds to determine practical solutions to resolve this critical issue.

“We also require the government's assurance that there will be no offset of GST credit for future SST payments,” it added.

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