(The following statement was released by the rating agency)
Dec 04 -
Summary analysis -- PT Perusahaan Listrik Negara (Persero) -------- 04-Dec-2012
CREDIT RATING: BB/Stable/-- Country: Indonesia
Primary SIC: Electric Services
Mult. CUSIP6: 71568P
Mult. CUSIP6: 71568Q
Credit Rating History:
Local currency Foreign currency
15-Mar-2010 BB/-- BB/--
03-Oct-2006 BB/-- BB-/--
Rating Rating Date
US$2 bil med-term note Prog 09/21/2011: sr
unsecd BB 21-Sep-2011
US$1 bil 5.50% med-term nts ser 1 due
11/22/2021 BB 15-Nov-2011
US$1 bil 5.25% med-term nts ser 2-1 due
10/24/2042 BB 16-Oct-2012
The rating on PT Perusahaan Listrik Negara (Persero) (PLN) reflects the company's high adjusted debt, an inefficient--albeit improving--fuel mix, and an uncertain tariff environment. PLN is also exposed to high foreign currency risks, with revenues in Indonesian rupiah (IDR) and operating costs, including fuel purchases, denominated predominantly in U.S. dollars.
Our assessment that there is an "extremely high likelihood" that the government of Indonesia (BB+/Positive/B; axBBB+/axA-2) will provide timely and sufficient extraordinary support to PLN in the event of financial distress supports the rating. We assess PLN's stand-alone credit profile as 'b+'. The company's dominant integrated position in the Indonesian power sector and the favorable demand outlook for electricity in Indonesia are additional credit strengths.
We assess PLN's financial risk profile as "aggressive" and its business risk profile as "fair," as our criteria define these terms.
We expect PLN's financial risk profile to remain aggressive over the next two to three years. This is due to the company's significant and largely debt-funded capacity expansion under two fast-track programs. We expect PLN's ratio of adjusted debt to total capital to remain above 60%. Such investments are necessary to improve Indonesia's electrification ratio and PLN's fuel mix, which has historically had a high reliance on high-cost oil-fired generation.
So far, about 4.5 gigawatts of coal-fired generation capacity has been commissioned under the government's first 10,000 megawatt fast track program. This has resulted in a progressive improvement in PLN's fuel mix. Oil now comprises less than 10% of the company's capacity generation mix, including purchases from independent power producers. We expect this ratio to improve further with planned coal-fired capacity additions of 3.7 gigawatts over the remainder of 2012 and 2013.
Increasing generation capacity should also strengthen PLN's cash flow generating ability, which has improved over the past two years because of tariff increases in 2010, timely government subsidies, and higher sovereign creditworthiness. Government subsidies to PLN currently include a public service obligation (PSO) margin of 7% above the cost of electricity supplied. The introduction of the PSO margin in recent years has made PLN profitable. The margin was 5% in 2009 and 8% in 2010 and 2011. Credit ratios have, however, remained stable due to a significant increase in debt to fund the company's generating capacity expansion. We project PLN's ratio of debt-to-EBITDA to be at or less than 6.5x in 2012, lower than the average 7.1x in 2007-2011.
PLN's business risk profile reflects the company's non-transparent, inflexible, and uncertain tariff mechanism. Government subsidies somewhat offset the effects of an uncertain tariff mechanism. The subsidies cover losses from PLN's inability to pass on higher fuel costs to its customers.
PLN's liquidity is "adequate," as defined in our criteria. We expect the company's liquidity sources, including cash, funds from operations (FFO), and credit facilities, to exceed its uses by at least 1.2x over the next 12 months. Our liquidity assessment is based on the following factors and assumptions:
-- As of Sept. 30, 2012, PLN has cash and cash equivalents of IDR15.99 trillion, compared with short-term debt maturities of IDR26.96 trillion (including interest and financing charges accrued on debt and fuel and electricity purchases).
-- PLN has access to working capital lines and unused loan facilities for investments under the fast track program.
-- In addition, timely government subsidies provide protection against higher production and operating costs.
-- Liquidity sources over the next 12 months include our expectation of FFO (including government subsidies) of about IDR22 trillion, available credit facilities, and cash and current investments.
-- Liquidity needs over the next 12 months include our expectation of capital expenditure of about IDR60 trillion, and dividends and debt repayments of about IDR9.30 trillion.
-- We anticipate that the company's liquidity sources will exceed its needs even if EBITDA declines by 15%.
The stable outlook reflects our expectation that the likelihood of government support to PLN will remain "extremely high" over the next couple of years. We expect the timely payment of government subsidies and believe that the government will maintain the PSO margin.
We may lower the rating on PLN if:
-- We perceive a lower likelihood of government support or a weakening in existing support measures, such as persistent delays or shortfalls in subsidy payments;
-- Government ownership in the company declines significantly and the government restructures PLN's operations or privatizes the company; or
-- We lower the sovereign credit ratings on Indonesia by a notch or PLN's stand-alone credit profile deteriorates by more than two notches. The likelihood of these two scenarios is remote.
We believe the likelihood of an upgrade is limited over the next 12 months. We may raise the rating if PLN's stand-alone credit profile improves by more than two notches or we raise the sovereign local currency rating by more than a notch.
Related Criteria And Research
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010
-- Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
-- Business And Financial Risks In The Investor-Owned Utilities Industry, Nov. 26, 2008
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
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