Singapore, April 06, 2017 — Moody’s Investors Service has affirmed Pertamina (Persero) (P.T.)’s Baa3 issuer and senior unsecured bond
ratings. Moody’s has also affirmed the (P)Baa3 rating on Pertamina’s $10 billion global medium-term note program. At the same time, Moody’s has upgraded Pertamina’s baseline credit assessment (BCA) to baa3 from ba1. The outlook on the ratings is positive.
RATINGS RATIONALE
“The upgrade of Pertamina’s BCA reflects the company’s strong financial performance in 2016, resulting in a strong improvement of its credit
metrics,” says Vikas Halan, a Moody’s Vice President and Senior Credit Officer.
“While we expect that Pertamina’s financial metrics will weaken over the next 12-18 months, they will remain well within the tolerance level for
the baa3 BCA,” adds Halan, who is also Moody’s Lead Analyst for Pertamina.
Pertamina’s EBITDA increased 47.6% year-on-year to $9.39 billion in 2016, despite lower oil prices globally. This result was largely driven by the
increase in the company’s downstream earnings and increase in its production volumes of oil & gas.
Pertamina’s downstream segment reported EBITDA of $4.83 billion in 2016 compared to $1.79 billion in 2015, because of the high selling prices of its petroleum products. Unlike the lower prices in international markets during this period, Pertamina’s selling prices were regulated by the
government, in particular the subsidized fuels and gasoline (RON88).
As international market prices increase, the contribution of the downstream segment will fall. The improvement in earnings from
Pertamina’s downstream segment was also driven by the improvement in the company’s refinery efficiency, which generated a higher yield of valuable products in 2016 as compared to previous years.
Pertamina lowered its capex levels in 2016, and 2016 was the second consecutive year in which the company generated positive free cash flows,
which resulted in lower net borrowings.
Pertamina’s net borrowings fell to $7.6 billion in 2016 from $13.3 billion in 2015. And, the company’s retained cash flow (RCF)/net debt
improved to 71% in 2016 versus 22% in 2015.
Moody’s expects some moderation in Pertamina’s downstream earnings — with EBITDA declining to around $2.5-$3 billion, and also an increase in capex to $4-$5 billion over the next 12-18 months; a situation which will weaken its credit metrics. Nevertheless, the company’s credit profile
should continue to remain supportive of its BCA of baa3.
As a government-related issuer, Pertamina’s Baa3 rating incorporates its BCA of baa3, and Moody’s expectation that the company will receive a high level of support from the Indonesian government (Baa3 positive) in times of need. The rating also takes into account the very high dependence between Pertamina and the Indonesian government, under Moody’s Joint Default Analysis approach.
Pertamina’s BCA of baa3 reflects the company’s strategically important position, as Indonesia’s only national integrated oil & gas company. It
is a significant contributor of the country’s upstream production capacity, and has substantial downstream operations, which have performed
particularly well during the low oil price environment.
The BCA also reflects Pertamina’s high and increasing natural gas production levels over the next 2-3 years; the prices of which are not
linked to crude oil prices, and which are relatively stable.
At the same time, the company’s ratings reflect its exposure to moderate regulatory risks associated with a transitioning fuel subsidy framework
in Indonesia, and execution risks associated with its sizable capital expenditure plans — including investments to expand its refining capacity
and acquisitions — which could weaken its credit metrics.
The outlook on the ratings is positive, reflecting the positive outlook for Indonesia’s sovereign rating. Because the ratings and the BCA are at par with that of the sovereign, an upgrade of either Pertamina’s BCA or ratings will require an upgrade of the Indonesian sovereign rating.
Further, the upgrade of the BCA will also require an established track record of increasing petroleum product prices in an increasing oil price
environment such that the risks to the downstream earnings are lower.
Credit metrics indicative of an upgrade of the BCA include RCF/ Net debt exceeding 25% -30% and EBITDA/ Interest exceeding 6x, both on a
sustained basis. Moody’s could change Pertamina’s ratings outlook to stable, if the outlook on the rating for the Indonesian sovereign is revised to stable.
Pertamina’s final ratings will be downgraded, if the sovereign rating is downgraded, or if Pertamina’s BCA falls below ba3. Downward pressure on
the BCA could develop, if there are any changes in the regulated fuel pricing framework that result in a substantial erosion of the company’s
earnings, or if the company embarks on large debt-funded acquisitions. Credit metrics indicative of downward pressure on the BCA include an
RCF/net debt below 20% and EBITDA/interest below 5x.
The principal methodology used in these ratings was Global Integrated Oil & Gas Industry published in October 2016. Other methodologies used
include the Government-Related Issuers methodology published in October 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
Pertamina (Persero) (P.T.) is a 100% Indonesian government-owned, fully-integrated oil & gas corporation, with operations in upstream oil,
gas and geothermal exploration and production, downstream oil refining, marketing, distribution, transportation and the trading of petroleum
products.