JAKARTA (TheInsiderStories) — Moody’s Investors Service has assigned a Baa3 rating to the proposed backed senior secured USD notes of LLPL Capital Pte. Ltd. (CPL) due 2038.
The proposed notes are unconditionally and irrevocably guaranteed by Lestari Banten Energi (P.T.) (Banten 1), a related power project held by the shareholders of CPL (95%) and a local Indonesian shareholder (5%). The outlook on the rating is stable.
CPL is a finance entity created by the majority shareholders of Banten 1. CPL will transfer the proceeds from the USD notes to LLPL Management Pte. Ltd. (MPL), a wholly owned subsidiary, in the form of equity contributions and/or intercompany loans. MPL will in turn on-lend the funds to Banten 1 in the form of an intercompany loan.
Banten 1 is a 660 MW supercritical coal-fired power plant in Banten province, Indonesia (Baa2 stable). It has a long-term power purchase agreement (PPA) to sell electricity to Perusahaan Listrik Negara (P.T.) (PLN, Baa2 stable). The PPA was signed in July 2012 and will end on 27 March 2042. Banten 1 was operational in March 2017.
The proceeds from the intercompany loan to Banten 1 will be used to: (1) fully refinance senior debt maturing in December 2024 and December 2029; (2) pay associated transaction costs; (3) fund the debt service reserve account and major maintenance reserve account; and (4) fund other corporate purposes, which may include partial repayment of outstanding shareholder loans.
The holders of the USD notes will benefit from several structural features which establish a linkage between the credit profiles of Banten 1, CPL and MPL.
Such features include an irrevocable and unconditional guarantee from Banten 1 and a collateral package comprising, but not limited to, the following: (1) the assets and land of Banten 1 and certain accounts in the cash flow waterfall; (2) assignments by Banten 1 of the insurance receivables and service agreement it has with the engineering, procurement and construction company; and (3) a pledge by Banten 1 shareholders of the capital stock of Banten 1 and assignment of the relevant shareholder’s interests and rights under the Banten 1 subordinated loans.
Because of these features, the rating of CPL is underpinned by Banten 1’s credit profile, which is consistent with a Baa3 rating.
“The Baa3 rating of the notes is supported by the revenue visibility
provided by the long-term power purchase agreement and the cost
competitiveness of Banten 1,” says Ray Tay, a Moody’s Vice President and Senior Credit Officer.
Banten 1 has a robust tariff structure, allowing for the recovery of
capital costs and pass-through of foreign exchange and coal costs;
thereby protecting cash flow-generating ability and providing a good degree of resilience to downside risk.
The rating also considers the investment grade credit profile of its sole offtaker, PLN.
At the same time, the rating is constrained by: (1) Banten 1’s moderate debt service coverage ratios (DSCRs); (2) high offtaker concentration and; (3) short operating track record of around 19 months.
Moody’s views the major forced outage which Banten 1 experienced in the fourth month of operations, as an isolated incident and expects the plant to gain a track record over time. Indeed, since the incident, the average for its monthly contractual availability has been higher than the PPA’s availability rate targets.
“The rating also takes into account our expectation of strong sponsor commitment and expertise, which will support measures to maintain Banten 1’s performance,” adds Tay.
In particular, shareholders have supported Banten 1 in the past, and Moody’s expects the two key shareholders — Genting Berhad (Baa1 stable) and State Development & Investment Corp., Ltd. (SDIC, A2 stable) — to continue to have the financial capacity and commitment to work in a timely manner to support the project, should any support be required.
Moody’s expects that Banten 1 will achieve an average DSCR of between 1.35x and 1.45x during the tenor of the bond, which is appropriate for the Baa3 rating level and compares adequately with similarly rated peers.
Given recent volatility in the capital markets, there is an element of uncertainty over the bond’s final coupon which, in turn, could affect the projected financial profile.
Moody’s considers that the project financing structure offers marginally lower protection to creditors when compared with other similarly-rated projects across Moody’s global portfolio, reflecting the fact that the PPA will not be assigned. Nonetheless, the security package is stronger than rated precedents in Indonesia such as Minejesa Capital BV (Baa3 stable).
Moody’s views the risks associated with the potential construction and operation of a second power generating unit (Banten 2), on the same site, as manageable. Banten 2 will be a separate company owned by the same shareholders as Banten 1, but Moody’s understands that the two projects will be legally ring-fenced.
The risks to CPL noteholders, as associated with the physical construction of Banten 1 and the joint operations and maintenance of Banten 1 and Banten 2, will be managed by committed sponsors, experienced operators, insurance coverage, as well as protection to noteholders via requirements that contractual arrangements between the two units are arms-length,
reviewed by technical advisors, and will not result in a rating decline.
Moody’s also views the uncertainty associated with the ongoing discussions with PLN on the sharing of refinancing gains, as related to this transaction, to be manageable.
As per the PPA, Banten 1 is required to share any refinancing gains with PLN according to a ratio of 70:30. The quantum of likely refinancing gains, if any, should not result in a material impact on the DSCR, especially considering the supportiveness of the shareholders.
The stable rating outlook reflects Moody’s expectation that Banten 1’s performance is unlikely to experience a material change over the next 12-18 months relative to Moody’s base case projections.
Upward momentum for the rating is unlikely due to Banten 1’s projected DSCRs and dividend policy, which comprises 100% of distributable cash flow. In addition, there is uncertainty on the extent of refinancing gains to be shared with PLN.
The rating could come under downward pressure if: (1) the projected financial metrics drop to levels below Moody’s base case expectations, including average DSCR falling consistently below 1.3x during the amortization period, potentially due to a weaker operational performance; (2) there is a material shareholder change and/or a reduced willingness and/or ability of the shareholders to provide support, potentially driven by a materially weaker credit quality; and/or; (3) there are negative developments, such as those related to the extent of the sharing
of refinancing gains with PLN or contagion risks from Banten 2’s
construction and subsequent operations.
Banten 1 is a 660 MW supercritical coal-fired power plant located on the Java-Bali grid in Indonesia. Banten 1 is located in Banten province, West Java, approximately 130km northwest of Jakarta.
Banten 1 is owned by Lestari Listrik Pte. Ltd. (LLPL, unrated, 95%), and PT Hero Inti Pratama (unrated, 5%). LLPL is currently owned indirectly by Genting Berhad (GENB, 57.89%) and SDIC Power Holdings Co., Ltd. (42.11%). The effective shareholding of GENB in Banten 1 is therefore 55%.
LLPL Capital Pte. Ltd. (CPL) is the issuer for the proposed USD notes. CPL is owned by LLPL. CPL will transfer the proceeds to its wholly owned subsidiary, LLPL Management Pte. Ltd. (MPL), and MPL will in turn on-lend the funds to Banten 1 as an intercompany loan.
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