JAKARTA (TheInsiderStories) – Two state-owned port operator ratings is inversely proportional. Moody’s Investor Services has affirmed the Baa3 issuer and senior unsecured ratings PT Pelabuhan Indonesia III (Pelindo III) and Baseline Credit Assessment (BCA) at ba1, but downgraded Pelindo II’ rating from Baa2 to Baa3 and BCA also ba1. The outlook on the ratings remains stable.
The ratings affirmation reflects our expectation that Pelindo III’ credit metrics will remain at a level that supports its Baa3 rating, notwithstanding the expected weakening in trade volumes at its ports due to the coronavirus outbreak. Moody’s view on the high support takes into account the government’s 100 percent ownership of the port operator and the importance of Pelindo III’ ports to the maritime industry in the Central and East Java region.
That said, the one-notch uplift to Pelindo III’s rating remains appropriate, balancing the position of ports as key infrastructure assets with Pelindo III’ comparatively lower strategic importance than other critical SOEs, such as PT Perusahaan Listrik Negara (Baa2 stable). The port sector is affected by the shock, given its exposure to declining cargo volumes stemming from weakening global trading levels and softer macroeconomic conditions.
Moody’s base case scenario assumes that trade volumes at Pelindo III’ ports will decline in 2020, as a result of coronavirus-induced disruptions to global supply chains and reduced trade flow as governments impose preventative measures and economic conditions weaken. Around 85 percent of the company’s revenue comes from cargo and vessel services, which are dependent on the number of ship calls and trade flow at its ports.
Despite expectation that trade volumes will recover in 2021, Pelindo III’ financial leverage will likely remain at around 10 percent over the next three to four years, primarily because of the incremental debt the company will incur to partially fund its substantial capital expenditure program of around Rp4.5 trillion (US$321.43 million) per annum over the next five years.
Pelindo III has sufficient liquidity — including Rp4.3 trillion of cash on hand at the end of March and projected operating cash flow under Moody’s base case — to meet its debt repayments, planned capital expenditure and dividend payments over the next 12 months.
Moody’s base case scenario assumes trade volumes at Pelindo II’ ports will decline in 2020, as a result of coronavirus-induced disruptions to global supply chains and reduced trade flow as governments impose preventative measures and economic conditions weaken, before recovering in 2021.
Under Moody’s base case scenario, Pelindo II’ financial leverage, as measured by funds from operations (FFO) to debt, will weaken to around the minimum tolerance level set for its ba1 BCA of 6 – 8 percent in 2020, before recovering in 2021. Its financial profile beyond the next 12 months will also be driven by its sizable debt-funded expansion program, which involves a capital expenditure of around Rp30 trillion over the next five years.
The company has a track record of underspending its budget in recent years. If this continues, it will give the port operator additional financial headroom.
Pelindo II has sufficient liquidity — including Rp20.8 trillion of cash on hand at the end of March 2020 and the projected operating cash flow under Moody’s base case — to meet its debt repayments, planned capital expenditure and dividend payments over the next 12 months.
Pelindo II is Indonesia’ leading port operator, with 12 ports across 10 provinces in Java, Sumatra and Kalimantan, including the country’ largest and busiest container port, Tanjung Priok in Jakarta. While, Pelindo III operated 43 ports across Eastern and Central Java, including the country’s second-largest and busiest container port, Tanjung Perak in Surabaya.
Both companies is wholly owned by the SOE ministry and is regulated by the Ministry of Transportation.
by Spencer Ng from Moody’s Investor Service