JAKARTA (TheInsiderStories) – Moody’s Investors Service has assigned a B1 corporate family rating (CFR) to PT Barito Pacific Tbk (Barito) on an outlook stable. At the same time, Moody’s assigned a B1 rating to its proposed senior secured notes with a pledge of certain shares in Chandra Asri Petrochemical Tbk (Ba3 stable). The B1 rating on the proposed notes is subject to review of final documentation.
“Barito’s B1 CFR is supported by its two key equity investments – Chandra Asri at 46.26 percent and Star Energy Group Holdings Pte Ltd. at 66.7 percent – and the expectation that dividend flows from these investments will be sufficient to cover interest costs and operating expenses at Barito on an ongoing basis,” said a Moody’s Vice President and Senior Credit Officer Brian Grieser.
The rating, he said, reflects on: first, diversified business profile of Barito’s investments across their petrochemical as well as energy and power generation businesses; second, solid interest coverage expected at Barito, primarily supported by dividends from Chandra Asri over the next three years; and third, good liquidity expected at Barito.
Furthermore, he stressed, the rating reflects the expected financing and construction risks associated with plans to invest in a 2,000 megawatt coal-fired power plant and the complex organizational structure of Barito as a holding company for all its investments with no operations or cash flows, other than dividends.
Moody’s economist expects the interest at Barito to be primarily serviced by dividends from Chandra Asri and existing balance sheet liquidity. Dividends from Star Energy are expected to be relatively small over the next three years but should increase over time creating meaningful cash flow diversification.
Initially, Moody’s expects dividends from investments to cover interest at Barito by 1.5 times to 2.0 times. Further, Moody’s expects bondholders to benefit from a pledge of security over certain shares Barito owns in Chandra Asri equal to 1.75 times the value of the notes.
Liquidity at Barito is expected to benefit from existing cash balances, the proceeds from the notes issuance above the outstanding US$200 million of debt, and dividends from its investments.
Barito, through its subsidiaries, owns a 49 percent stake in the project to build a 2,000-megawatt coal-fired power plant.
Moody’s expects Barito’s equity stake to be financed through land contributions, potential investments by strategic investors, and/or cash, which could come from the notes proceeds, or the conversion of outstanding warrants, largely held by Projogo Pangestu, which owns almost 73 percent of Barito’s shares.
The balance of the project costs are expected to be funded with project debt at the joint-venture level and equity from partners. PT Indonesia Power, a subsidiary of PT Perusahaan Listrik Negara (Baa2 stable), owns the remaining 51 percent of the coal-fired power project.
The proposed notes will constitute the only debt at Barito and are therefore rated at the same level as Barito’s CFR.
The stable outlook reflects Moody’s expectation that dividends from Chandra Asri, combined with existing cash balances, will be enough to support Barito’s interest burden and operating costs over the life of the bond. Further, Barito’s share of equity contributions to the coal-fired plant is expected to be funded prudently.
The ratings could be upgraded if: 1) Chandra Asri increases its dividends and/or Star Energy begins paying dividends thus diversifying Barito’s cash flows and supporting interest coverage – defined as dividends received to cash Interest expense at Barito – above 2.0 times on a sustainable basis; and 2) demonstrates the ability to maintain cash balances of over 2.0 times interest at the Barito level, despite making its equity investments in its CFPP project.
Ratings could be downgraded if: 1) dividend flows from Chandra Asri and Star Energy decline such that interest coverage falls below 1.25 times; or 2) the combined ownership of Pangestu and Barito in Chandra Asri shares fall below 50 percent.
Currently, Barito is planning to be one of the two lead sponsors in the construction of a $3.4 billion 2,000MW ultra-supercritical coal fired power project. The project will be 51 percent indirectly owned by PT Indonesia Power, a subsidiary of PT PLN with Barito owning a 49 percent share through its subsidiaries.
While, land for the project has been secured by Barito and PT PLN IP and a power purchase agreement was signed in December 2018 with PLN. The project is expected to be completed in 2023-2024 and will be funded with equity and project financing debt.
Written by Daniel Deha, Email: email@example.com