JAKARTA (TheInsiderStories) – The national petroleum company, PT Pertamina, offered US Dollar denominated bond under the US$20 billion program said the international rating agencies today. The notes get rating BBB from Fitch and Baa2 from Moody’s Investor Service.
“The bonds will be used for capital expenditures and other general corporate purposes,” said Fitch Ratings in written statement released on Tuesday (02/02).
Last time Pertamina released the global bond on February 2020, amounted to $750 million also getting Baa2 rating from Moody’s. The proposed US-dollar notes are rated at the same level as Pertamina’ senior unsecured debt as they will constitute its direct, unconditional, un-subordinated and unsecured obligations. The ratings are equalized with those of its parent, Indonesia (BBB/Stable).
“We assess Pertamina’ Standalone Credit Profile at ‘bbb-‘ due to its resilient financial profile through the oil-price cycle, low-cost upstream production and integrated operations. The rating, however, is constrained by regulatory fuel-pricing risk. We estimate that EBITDA declined by about 20 percent to $6.5 billion in 2020 due to lower upstream production and retail fuel volume,” wrote the report.
Then, “We also expect retail volume to return to pre-pandemic levels by 2022 and stable retail prices.”
Pertamina has awarded some of the larger oil and gas blocks upon the expiry of their production-sharing contracts and Fitch expects this practice to continue per government policy, which should improve its business and financial profile. The country through Pertamina has imports a large share of its retailed final petroleum products and externally sources more than half of its crude requirements for refining.
While, Hui Ting Sim, from Moody’s, said Pertamina plays a crucial role in oil and gas exploration in Indonesia, and accounts for substantially all of the country’s refineries, fuel marketing stations and gas pipelines. The company, which is a wholly-owned subsidiary of the government, is also mandated to execute on Indonesia’ hydrocarbon agenda and safeguard energy security.
As such, Pertamina‘ strategies and budget are closely supervised by the government. These factors support Moody’s assessment of a very high likelihood of government support in a distressed situation, and very high interdependence between the two parties.
Moody’s assumed that the company will spend about $6 billion per year from 2021-22 while the company has budgeted for significantly higher amounts. This is based on the producer track record of financial prudence and spending significantly lower than its budgeted capital spending.
Over the next 12 – 18 months, Moody’s expects Pertamina‘ adjusted retained cash flow to net debt and EBITDA to interest will be around 35 – 45 percent and 7.5x – 8.5x, respectively. These projections based on an assumptions of Brent prices averaging $45 per barrel in 2021 and $55 per barrel in 2022, stronger domestic demand for transportation fuels compared to 2020 as movement restrictions ease, timely receipts of government compensation at Pertamina.
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