King Salman's visit proves fruitful for Malaysia

The visit underpinned a close 60-year bond between both countries, marked by mutual respect and work to develop relations in all fields.

Seven memorandums of understanding (MoU) with an estimated value of about RM9.74 billion were signed between Malaysian and Saudi Arabian companies, covering various areas as construction, halal cooperation, aerospace and haj services.

However, the biggest chunk of business came from Petronas and the Saudi Arabia Oil Company's (Saudi Aramco) share purchase agreement worth RM31 billion.

The agreement will see Saudi Aramco acquiring a 50 per cent ownership in the Petronas Refinery and Petrochemical Integrated Development (Rapid) refinery project and cracker assets.

The company will also supply up to 70 per cent of the crude feedstock for the refinery needs.

Minister of International Trade and Industry Datuk Seri Mustapa Mohamed said the investment by Saudi Aramco is a testament of confidence in the country's economic strength and potential.

"This is a historic agreement which will see the two petroleum giants working together on one of the largest projects in Southeast Asia," he said in his Facebook posting today.

He said it also refuted allegations that Malaysia was too dependent on China.

He also cited the strong relationship between Malaysia and Saudi Arabia and in particular, Prime Minister Datuk Seri Najib Tun Razak and King Salman.

"More companies from Saudi Arabia would be interested in making Malaysia an investment destination," he added.

Hong Leong Investment Bank in a research note said the agreement with Saudi Aramco would partially relieve Petronas from its heavy capital expenditure (capex) commitment to Rapid and provide a better cash buffer in maintaining dividend payments to the government.

"For the nine months of 2016, Petronas' operating cash flow of RM36.1 billion was just sufficient to cover the capex spending of RM35.9 billion. The dividend of RM12 billion had to be financed from its cash reserves," it added.

It said with the deal, Petronas would be able to self-sustain payments to the government without a further cash drain.

However, the complexity of the oil refinery, it said, would be higher than existing refineries in Malaysia. This is given the higher sulphur content of Saudi Arabian crude oil as compared to Malaysia's.

The investment bank too is not expecting a significant jump in capex spending by Petronas post partial relief of Rapid commitments due to Saudi Aramco's investment.

The cash surplus is expected to be mainly directed for dividend payments to the government.

Meanwhile, on the seven MoUs signed between Malaysian and Saudi Arabian companies, Mustapa said it signalled growing interest from both countries to leverage on mutual strengths in achieving business goals

"As Saudi Arabia is moving away from its reliance on oil revenue, we would like to encourage investors from there to explore the business potential in new growth areas, particularly advanced technology products," he said at the Malaysia-Saudi Arabia Business Forum.

Among the local companies that signed the MoUs were Halal Industry Development Corp, Prasarana Malaysia Bhd, Dewina Holdings Sdn Bhd, Majlis Amanah Rakyat and Silvertech Global Sdn Bhd.

Mustapa also invited Saudi Arabian multinational corporations (MNCs) to take advantage of Malaysia's Principal Hub scheme which enabled them to use the country as a base to boost key strategic value-adding functions towards becoming more cost-efficient.

On the other hand, he said Malaysia also had a strong presence in Saudi Arabia's construction sector with 19 contracts worth RM18.5 billion awarded to Malaysian companies to date.

Last year, Malaysia's total trade with Saudi Arabia increased by 27.8 per cent to RM14 billion from RM11 billion in 2015.