JAKARTA (TheInsiderStories) – Moody’s Investors Service (“Moody’s”) has assigned a Baa2 rating to the proposed senior unsecured notes to be issued by PT Perusahaan Listrik Negara (PLN, Baa2 stable). The rating outlook is stable.
The notes will be issued under PLN’s existing US$15 billion senior unsecured medium-term note program, which is rated (P)Baa2. The company plans to use the proceeds to partially fund its capital expenditure requirements and for general corporate purposes.
Just three months ago, PLN had issued global bonds worth $1.4 billion. In 2018, the state-owned power producer also issued global bonds worth of $1.5 billion in dual-currencies, American dollar and Euro.
The bonds were issued in two tenors, $700 million bonds with 10-year tenor with coupon rate at 3.875 percent and $700 million bonds with 30-year tenor have a coupon rate 4.875 percent, respectively.
Since July 4, the company has conducted a roadshow for the global bond issuance to Hong Kong, Singapore, the United Kingdom, and the United States. Moody’s, S&P Global Ratings, and Fitch Ratings, provided an assessment of the quality of the bonds’ credit with Baa2, BBB and BBB rating levels.
According to Moody’s, the Baa2 ratings for the notes and the MTN program reflect the application of Moody’s rating methodology for Government-related issuers (June 2018) that combines the company’s standalone credit quality, or baseline credit assessment of ba2, and an assessment of the credit support that the government (Baa2 stable) is likely to provide in a distressed situation in light of its 100 percent ownership of PLN which results in three-notch uplift.
The ba2 reflects the company‘ position as integrated electric utility, including its dominant position in generation, transmission and distribution businesses, also longstanding subsidies from the government ensure its financial viability and operational soundness, says Moody’s.
At the same time, the ba2 is challenged by weakening fundamentals, driven by a tariff freeze for two and a half years, in effect until December 2019, and which constrains PLN’ cash flow generation.
The tariff freeze increases the producer’ dependence on the government to meet the shortfall in the form of compensation income, although this is partially mitigated by the government’s decision to also freeze the price of coal, which is a material fuel for PLN.
The ba2 also reflects the company’ high financial leverage, which has been further elevated by its involvement in the national capacity additions programs – Fast Track programs 1 and 2, and a 35 GigaWatts program. These programs are expected to increase PLN’s debt levels and put further pressure on its key credit metrics over the medium-to-long term until the programs are completed.
The three-notch uplift in the rating reflects the strategic importance of PLN, and Moody’s expectation of a very high likelihood of government support in a distressed situation. Such an expectation of support considers the 100 percent government ownership in the company, plus the strategically important role that PLN plays in the country’ critical power sector.
The government has over time provided performance guarantees in support of some of the producer’ debt.
The stable outlook reflects the stable outlook on Indonesia’ sovereign rating and PLN‘ strategically important position as Indonesia’s only vertically integrated electric utility, and its close linkage with the government.
PLN is the dominant Indonesian operator of generation plants, and transmission and distribution networks. Its transmission network covered around 53,278 kilometers and its distribution network covered around 948,955 kilometers at the end of 2018.
The state company is also the country’ largest electricity producer, with a capacity of around 44.2 Gigawatts, which accounted for 76.4 percent of the market at the end of 2018. It is the sole off-taker for Indonesia’ independent power producers.
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