Moody's Investors Service has downgraded the corporate family and the senior unsecured rating of PT Saka Energi Indonesia to B2 from B1 - Photo by the Company

JAKARTA (TheInsiderStories) – Moody’s Investors Service has downgraded the corporate family and the senior unsecured rating of PT Saka Energi Indonesia to B2 from B1. At the same time, Moody’s has placed the rating on the senior unsecured notes on review for downgrade.

The outlook on all ratings has been changed to rating under review from negative.

“The downgrade reflects our expectation of a lower likelihood of financial support from its parent, PT Perusahaan Gas Negara Tbk (IDX: PGAS) (Baa2 stable), following Saka‘ partial repayment of its shareholder loan,” says Hui Ting Sim, a Moody’s Analyst in the latest report.

He continued, “We view the repayment as effectively a cash extraction by PGAS that will weaken Saka’ liquidity at a time of subdued oil prices and while Saka still likely has to pay a significant US$127.7 million tax penalty.”

The review for downgrade reflects the heightened liquidity risk at the energy firm, after its payment to Perusahaan Gas Negara, especially if the company is also required to pay the full tax penalty to the Indonesian tax authorities over the next12 months,” adds Sim.

On 5 January, he said, the parent announced that Saka will repay $77.6 million of the $155.2 million shareholder loan owed to the issuer on Jan. 6, 2021. The maturity of the balance $77.6 million will be extended by one year to Jan. 6, 2022. Saka had cash and cash equivalents of $268 million as of end of September 2020, and will use internal cash for the partial repayment.

The partial repayment deviates from Moody’s earlier expectation that the maturity of the shareholder loans will be extended without any repayment. This development also diverges from Perusahaan Gas Negara‘ original intention expressed in August 2020 that it will extend the shareholder loan by two years.

Saka’ partial repayment of the shareholder loan will reduce its liquidity buffers to weather lower oil prices and service its tax penalty. The tax penalty relates to the 2014 purchase of a 65 percent stake in Pangkah block by Saka from Hess Corporation (Ba1 stable).

It already paid $127.7 million to the tax authorities in April 2020, and the company is liable to pay another $127.7 million of penalty. Saka‘ liquidity will be strained if it has to pay the full $127.7 million over the next 12 months. The company is currently discussing the potential for affordable payment terms with the tax authorities.

Saka currently has limited bank lines available, and its access to financing will likely be constrained by the uncertainty around its role and relevance within PGAS and PT Pertamina (Baa2 stable) corporate structure. Its liquidity will also be weak if the company is unable to secure an extension from the parent on the maturity of its $361 million in shareholder loans due January 2022.

Oil and gas production at Saka fell to 25.7 thousand barrels of oil equivalent per day (kboepd) in the first nine months of 2020 from 34.4 kboepd in 2019. Moody’s estimates the energy firm will produce around 23 – 27 kboepd of oil and gas over the next two years.

The agency also expects Saka will maintain capital spending at low levels around $100 million per annum to preserve liquidity. The one-notch uplift from parental support incorporated in its B2 ratings takes into account the cross-default clauses between PGAS and Saka, and  the reputational and funding risks to PGN and its ultimate shareholder, Pertamina, should Saka default.

Saka Energi is an independent oil & gas exploration and production company in Indonesia. The company holds working interests in eleven oil and gas blocks, six of which are producing. In the first nine months of 2020, the company reported net production of 25.7 thousand barrels of oil equivalent per day.

The producer is wholly-owned by natural gas distribution and transmission company, Perusahaan Gas Negara. In turn, PGAS is 56.96 percent owned by Indonesia’ 100 percent state-owned national oil company, Pertamina.

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