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Fitch Assigns Citra Kusuma Perdana at 'A-(idn)'; Stable Outlook
April 13, 2017 / 7:31 AM / 5 months ago

Fitch Assigns Citra Kusuma Perdana at 'A-(idn)'; Stable Outlook

(The following statement was released by the rating agency) JAKARTA, April 13 (Fitch) Fitch Ratings Indonesia has assigned power plant construction company PT Citra Kusuma Perdana a National Long-Term Rating of 'A-(idn)' with a Stable Outlook. The rating benefits from the steady financial profile of PT Kaltim Prima Coal (KPC) as CKP's sole rental counterparty. The future cash flows that CKP will receive from the power plants are highly visible as they are based on a long-term contract with fixed monthly payments on a take-or-pay basis as stated in the power services agreement with KPC. These payments from KPC also take priority as defined under the Cash Distribution Agreement of KPC. CKP's creditors benefit from defined priority and waterfall conditions under the debt facility's agreements, and from a subordination agreement related to Equity Partner Loan Facility from Indocoal Resources (Cayman) Limited. 'A' National Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment to a greater degree than is the case for financial commitments denoted by a higher-rated category. KEY RATING DRIVERS Single Off-Taker in KPC: CKP and KPC have entered into a Power Services Agreement (PSA) whereby CKP will provide services, including planning, engagement of contractor, procurement, supply, construction, erection, testing, and commissioning of the 3 x 18 megawatt (MW) power project. Off-take by KPC stipulates fixed monthly payments from KPC on a take-or-pay basis, totalling USD40 million per annum. Not Integral to KPC Operation: CKP's service will be important in generating savings for KPC operation. However, KPC can access power supplies fuelled by the more expensive diesel, which is not considered integral to its operations. KPC's power requirement is 27MW, which is likely to be met solely under the PSA. Yet KPC would be able to sell any excess production, over the nameplate capacity, from the power plant to PT Perusahaan Listrik Negara (Persero) (PLN, BBB-/Positive). Cost Pass-Through: Under the PSA, KPC bears full responsibility and expense for asset quality and maintenance. KPC also bears the costs and risks of coal supplies to operating the power station. Fixed rental payments and cost pass-through under the PSA, will allow CKP to meet stipulated debt repayments under its debt-facility agreements. KPC's Stable Financial Profile: KPC's low financial risk profile supports its ability to service its rental payments with CKP. Fitch expects improving prospects for coal-linked revenues from a gradual recovery in thermal coal prices to support KPC's earnings growth. Its credit profile reflects its position as one of Indonesia's large coal-mining companies. Defined Cash Flow Waterfall: KPC has implemented a cash distribution agreement (CDA) which prescribes the precedence (waterfall) for various business purposes. The agreement states that rental payments to CKP take priority over payments of KPC production expenses, annual tax liabilities, payment of approved capital expenditure, and payouts to the shareholders of KPC. The CDA reduces potential misappropriation by the shareholders. Payments to CKP are small compared with KPC's overall size, although this does not eliminate the risk of non-payment due to insufficient cash flow from KPC's operations. Loan Covenants Provide Protection: Debt repayments benefit from a credit agreement that stipulates a priority of payments from an escrow account - including the maintenance of interest and debt service reserve accounts - ahead of operating costs. This agreement also stipulates change-of-control conditions such as Tata Power's controlled companies should continue to hold a minimum 30% stake in CKP and 25% in KPC to avoid triggering a default. This provides for adequate corporate governance protections via a continued presence of a substantial minority shareholding by Tata Power and its controlled companies in CKP and KPC. DERIVATION SUMMARY Our 'A-(idn)' rating of CKP takes into consideration the credit profile of its sole counterparty off-taker - KPC. We also compare the credit profiles of CKP with other national rated peers such as PT Aneka Gas Industri Tbk (A-(idn)/Stable), an industrial gases company, and PT Berlina Tbk (A-(idn)/Stable), a plastic packaging manufacturing company. Fitch assesses CKP's financial profile to be stronger than these peers, in particular its FFO interest coverage. CKP benefits from more predictable cash flows, reflecting the defined and fixed-cash receipts under the PPA from KPC, and the larger size and profitability of KPC's coal-mining operations. However, CKP is reliant on a sole off-taker with limited scope of operations and structural limitations on any revenue upside, unlike these peers. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Fixed rental payments of USD40 million per annum from KPC under the Power Sharing Agreement over 2017 to 2021. - Debt of USD69.5 million, including an upsize amount of USD30 million under ICICI Facility A, maturing in 2021. - Debt of USD30 million under Facility B, maturing in 2018. - Principal debt repayment in line with management estimates, which is higher than the stipulated minimum debt maturities, as detailed in the draft repayment terms dated 28 February 2017. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - No positive rating action is anticipated, given the limited operational benefit to and integration with the sole off-taker. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - FFO-adjusted net leverage above 3.0x on a sustained basis. - Unfavourable changes in Power Service Agreements, including its cancellation, or that result in changes to the existing payment structure and/or delay in receipt of payments LIQUIDITY Adequate Liquidity, Spread-out Maturities: We believe that CKP's forecast cash flows are adequate to repay its debt facilities within their maturities. Debt repayments also benefit from a priority under the creditor agreement and from maintenance of interest and debt-service reserve accounts. Fitch expects CKP to make a total principal debt repayment of about USD26 million in 2017 from expected FCF of about USD26.5 million in 2017. FULL LIST OF RATING ACTIONS PT Citra Kusuma Perdana --National Long-Term Rating assigned at 'A-(idn)'; Outlook Stable Contact: Primary Analyst Salman Alamsyah +62 21 2988 6818 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor Suite 2403 Jl Prof Dr Satrio Kav 3-5 Jakarta 12940 Committee Chairperson Sajal Kishore Senior Director +61 2 8256 0321 Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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