Singapore, November 04, 2020 -- Moody's Investors Service has affirmed Cikarang Listrindo (P.T.)'s
(Cikarang) Ba2 corporate family and senior unsecured bond ratings.
The outlook on all ratings remains positive.
RATINGS RATIONALE
"Cikarang's Ba2 ratings reflect its market position as the sole
private supplier of electricity to five industrial estates in West Java
in Indonesia and its diversified and good quality customer base,
which we believe will underpin a gradual recovery in energy sales in its
catchment area as the economy recovers post-pandemic,"
says Spencer Ng, a Moody's Vice President and Senior Analyst.
Cikarang's credit profile also benefits from our expectation that
the company will maintain strong financial metrics in 2021 and beyond,
solid operating track record and supportive features in its power supply
agreements with customers, which help mitigate its exposure to fluctuations
in fuel costs.
These credit strengths offset the company's reliance on shorter-term
fuel supply from third parties to meet its generation needs, although
Cikarang has successfully secured contract extensions in the past.
"The positive rating outlook reflects our expectation that power
demand will recover in 2021 and will likely support the strengthening
of financial metrics to levels that will put upward momentum on the rating,"
adds Ng.
In the first half of 2020, sales to industrial customers declined
by 14.5% as a result of the economic slowdown caused by
the pandemic and social distancing restrictions, which slowed manufacturing
activities in the industrial estates. As a result, Moody's
estimates that Cikarang's retained cash flow (RCF)/debt will fall to slightly
below 11% in 2020.
Sales to industrial customers steadily increased after the movement restrictions
were lifted in June, and by September, monthly sales recovered
to just above 80% of the 2019 level. Moody's believes
the recovery is partly due to the resumption of production activities
as well as the changes made by manufacturing companies to ensure that
they could operate at capacity while complying with social distancing
measures.
Under Moody's base case scenario, Cikarang's RCF/debt
will likely recover to 14%-17% over the next 12-18
months which, if sustained, will exceed the rating tolerance.
Moody's financial projections further assume no material change
to the company's capital management initiatives and no material
shift in its growth strategy, which is focused on organic growth.
Cikarang has strong liquidity, highlighted by historically high
cash holding ($283 million as at end September 2020, including
cash deposits), and manageable capex and no debt repayments over
the next 12 months.
With regard to environmental, social and governance (ESG) risks,
Cikarang has a manageable exposure to carbon-transition risk.
Around 75% of Cikarang's generation capacity comes from gas-fired
power stations, which are less carbon intensive than coal-fired
power stations. Moreover, its management is actively pursuing
opportunities to grow rooftop solar generation and the use bio-mass
fuel in its sole coal-fired power station.
Moody's expects that changes to Indonesia's energy mix will be gradual,
with policies to discourage coal-based additions unlikely in the
short term. This reduces Cikarang's exposure to adverse policy
changes
Cikarang's exposure to governance risk primarily stems from its concentrated
ownership, with three private investment companies holding close
to 85% of its equity interest and control over the company's growth
and capital management strategy. Moody's considers the potential
exposure to governance issues as manageable, as Cikarang has limited
transactions with its related parties and has largely maintained a measured
approach to shareholder-friendly initiatives, such as share
buybacks, which have been mainly funded by cash on hand.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade Cikarang's ratings if (1) its RCF/debt rises above
13% on a sustained basis as power demand in the industrial estates
gradually returns; and (2) its business profile or capital management
philosophy does not change materially.
However, Moody's could change the outlook to stable if Cikarang's
operational or financial profile deteriorates, which could arise
from a worsening pandemic, a material shift away from its organic
growth strategy or a material increase in dividend payments. Specifically,
financial metrics that would indicate such a change in the outlook include
RCF/debt ranging from 10% to 13% on a sustained basis.
The principal methodology used in these ratings was Unregulated Utilities
and Unregulated Power Companies published in May 2017 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1066389.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Cikarang Listrindo (P.T.) is an independent power producer
that supplies electricity to over 2,400 industrial customers in
five industrial estates in the Cikarang region in the outskirts of Jakarta.
The company owns and operates natural gas-fired combined cycle
power stations and a coal-fired power plant, with a total
combined capacity of 1,144 MW as of 31 October 2020.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Spencer Ng
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 61 2 9270 8141
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
