Moody's Investors Service has affirmed private power producer, PT Cikarang Listrindo' Ba2 corporate family and senior unsecured bond ratings - Photo by the Company

JAKARTA (TheInsiderStories) – Moody’s Investors Service has affirmed private power producer, PT Cikarang Listrindo‘ Ba2 corporate family and senior unsecured bond ratings. The outlook on all ratings remains positive.

“Cikarang’ Ba2 ratings reflect its market position as the sole private supplier of electricity to five industrial estates in West Java in Indonesia and its diversified and good quality customer base, which we believe will underpin a gradual recovery in energy sales in its catchment area as the economy recovers post-pandemic,” says Spencer Ng from Moody’s in a latest report released on Wednesday (10/04).

Cikarang‘ credit profile also benefits from our expectation that the company will maintain strong financial metrics in 2021 and beyond, solid operating track record and supportive features in its power supply agreements with customers, which help mitigate its exposure to fluctuations in fuel costs.

These credit strengths offset the company’ reliance on shorter-term fuel supply from third parties to meet its generation needs, although the company has successfully secured contract extensions in the past.

“The positive rating outlook reflects our expectation that power demand will recover in 2021 and will likely support the strengthening of financial metrics to levels that will put upward momentum on the rating,” adds Ng.

In the first half of 2020, sales to industrial customers declined by 14.5 percent as a result of the economic slowdown caused by the pandemic and social distancing restrictions, which slowed manufacturing activities in the industrial estates. As a result, Moody’s estimates that Cikarang‘ retained cash flow to debt will fall to slightly below 11 percent in 2020.

Sales to industrial customers steadily increased after the movement restrictions were lifted in June, and by September, monthly sales recovered to just above 80 percent of the 2019 level. Moody’s believes the recovery is partly due to the resumption of production activities as well as the changes made by manufacturing companies to ensure that they could operate at capacity while complying with social distancing measures.

Under the agency ase case scenario, Cikarang‘ RCF to debt will likely recover to 14 – 17 percent over the next 12 – 18 months which, if sustained, will exceed the rating tolerance. Moody’s financial projections further assume no material change to the company’s capital management initiatives and no material shift in its growth strategy, which is focused on organic growth.

The producer has strong liquidity, highlighted by historically high cash holding (US$283 million as at end September 2020, including cash deposits), and manageable capex and no debt repayments over the next 12 months. Around 75 percent of its generation capacity comes from gas-fired power stations, which are less carbon intensive than coal-fired power stations.

Moreover, the management is actively pursuing opportunities to grow rooftop solar generation and the use bio-mass fuel in its sole coal-fired power station. Moody’s expects that changes to Indonesia’ energy mix will be gradual, with policies to discourage coal-based additions unlikely in the short term.

This reduces the company’ exposure to adverse policy changes Cikarang’ exposure to governance risk primarily stems from its concentrated ownership, with three private investment companies holding close to 85 percent of its equity interest and control over its growth and capital management strategy.

Cikarang Listrindo is an independent power producer that supplies electricity to over 2,400 industrial customers in five industrial estates in the Cikarang region in the outskirts of Jakarta. The producer owns and operates natural gas-fired combined cycle power stations and a coal-fired power plant, with a total combined capacity of 1,144 MW as of Oct. 31, 2020.

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