JAKARTA (TheInsiderStories) – Moody’s Investors Service has affirmed PT Perusahaan Listrik Negara‘ (PLN) Baa2 issuer and senior unsecured ratings and has downgraded its Baseline Credit Assessment (BCA) to ba3 from ba2. The agency also affirmed the (P)Baa2 rating on PLN’ senior unsecured MTN program.
Its also affirmed the Baa2 senior unsecured rating for the bond issued by Majapahit Holding BV, the company’ wholly owned subsidiary, and guaranteed by the power producer. The outlook on all ratings remains stable.
“The downgrade of PLN’ BCA reflects the company’s weakening fundamentals, principally driven by a sharp decline in electricity demand over recent months, continued shortfall in receipts from the government and at the same time increased dependence on government subsidies, as well as its very high leverage,” says Abhishek Tyagi, a Moody’ senior analyst.
He added, “The ba3 BCA factors in the company’s position as Indonesia’ only vertically integrated electric utility, including its dominant position in generation, transmission and distribution.”
Moody’s expects PLN‘ financial leverage will remain elevated, given its involvement in national capacity additions programs, namely fast track programs 1 and 2, and a further 35 gigawatt (GW) program. These programs will likely increase the producer’ debt and pressure its key credit metrics over the medium to long term, until the programs are completed.
The four-notch rating uplift reflects Moody’s expectation of a very high likelihood of government support in a distressed situation. Such expectation of support considers the 100 percent government ownership in the company, plus the strategically important role that PLN plays in Indonesia’ critical power sector.
The Baa2 rating also considers the moderate carbon transition risk of Perusahaan Listrik Negara despite 42 percent of its generation capacity being coal-based, because coal continues to be cheapest source of electricity generation, continued policy support for coal-based additions, and its 100 percent ownership by the government and its significant strategic importance.
The stable outlook reflects the stable outlook on Indonesia’ sovereign rating and PLN’ strategically important position as Indonesia’ only vertically integrated electric utility, and its close linkage with the government.
Given the close link between the electricity firm‘ rating and the sovereign rating, an upgrade of the latter may trigger an upgrade of its rating. PLN’ BCA could be raised if retained cash flow/debt rises above 6% on a consistent basis.
Similarly, a downgrade of the sovereign rating will almost certainly trigger a downgrade for the company. Furthermore, a partial privatization of PLN or a meaningful reduction in government subsidies could trigger a downgrade.
Perusahaan Listrik Negara‘ BCA could be lowered if a greater than expected proportion of planned capital expenditures are funded with debt, such that retained cash flow/debt falls below 3 – 4 percent on a sustained basis.
The producer is the dominant Indonesian operator of generation plants, and transmission and distribution networks. Its transmission network covered around 56,899ckm and its distribution network covered around 970,616ckm at the end of September 2019.
PLN is also the country’s largest electricity producer, with a capacity of around 44.9GW, which accounted for 73.1 percent of the market at the end of September 2019. It is the sole offtaker for Indonesia’ independent power producers.
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