KUALA LUMPUR: S&P Global Ratings expects large energy companies in India and Southeast Asia including Petronas to likely weather the low oil price and margins by tightening their financial policies.
The other Southeast Asian companies are Thailand’s PTT Public Co Ltd, PTT Exploration and Production Public Co Ltd, PTT Global Chemical Public Co Ltd, Thai Oil Public Co Ltd and Indonesia’s PT Pertamina (Persero) and PT Medco Energi Internasional Tbk.
The Indian companies are Reliance Industries Ltd and Oil and Natural Gas Corp Ltd
In a statement today, the credit risk research firm said it expected the credit quality of most of these companies to improve in 2021 after deteriorating in 2020.
It said some companies might cut investments and monetise asset disposals as Brent oil price is likely to rebound to US$50 per barrel (bbl) in 2021, from US$30/bbl in 2020.
Concurrently, it said, oil refining and petrochemical margins were anticipated to improve with a recovery in consumption and trade.
Nevertheless, it said the credit quality of the energy majors could stay suppressed if the Covid-19 pandemic prolonged beyond expectation.
“The extent of the hit to the 2020 earnings of these energy major companies will depend on their integration, complexity and diversity of products mix,” credit analyst Shawn Park said.
S&P Global Ratings said it also expected operating conditions to recover gradually toward the end of the year, amid a strong US dollar as well as resilient demand for crude oil which support these companies’ sales volumes.
“In our opinion, these energy companies will make temporary production cuts of 5%-10% to prevent further margin erosion.
“They will also likely look to preserve cash and reduce spending to strengthen their balance sheets,” another credit analyst, Pauline Tang, said.
The credit risk research firm said Petronas is likely to maintain its spending on local capital expenditure (capex) at around RM26 bil-RM28 bil.
“However, some delays in projects are likely. Our base case assumes about RM50 bil, but considering low oil prices, we believe Petronas could lower its total investment plans for 2020,” it said.
Overall, S&P Global Ratings said industry headwinds would continue to exert pressure on these energy companies’ earnings quality, given their tightened financial policy and balance sheet strength.
The ratings on most of these entities like Petronas is tied to the respective sovereign ratings.
“Our rating outlooks on these companies will continue to follow that of the sovereign, provided their relationship with the governments remains intact,” it added. – May 13, 2020, Bernama
