Singapore, May 02, 2014 -- Moody's Investors Service has affirmed Perusahaan Gas Negara's (PGN)
Baa3 issuer rating.
Moody's has also assigned a provisional rating of (P)Baa3 to its proposed
senior unsecured bonds.
The ratings outlook is stable.
RATINGS RATIONALE
PGN's Baa3 rating reflects the application of Moody's rating methodology
for government-related issuers (GRIs), updated in July 2010,
and which incorporates (1) the company's standalone credit quality,
or baseline credit assessment (BCA) of baa3; and (2) Moody's assessment
of the credit support that the government of Indonesia (Baa3 stable) is
likely to provide in a situation of stress.
"The senior unsecured rating of (P)Baa3 is mainly driven by PGN's
good pricing power with a track record of cost pass through, favorable
industry dynamics that offer strong growth potential, and a strong
financial profile that is constrained by sizeable capital expenditure
and upstream business expansion," says Ray Tay, a Moody's
Associate Vice President and Analyst.
"Although PGN is ambitious in seeking to expand its upstream business,
thereby increasing its capital expenditure and execution risk, we
recognize the long-term benefits of this strategy as it will help
diversify its business and supply sources," adds Tay.
"PGN's strong financial profile as well as its management
strategy and investment criteria somewhat mitigate the execution risk."
Its BCA also considers the potential volatility in distribution cash flows
owing to the mismatch between its sales contracts and supply contracts.
Under Moody's rating methodology for GRIs, government support
for the company is assessed as "strong" given its strategic role in Indonesia's
gas sector.
Moody's assesses the dependence level as "high" as the
credit profiles of PGN and the Indonesian government are closely linked,
given PGN's domestic focus.
The ratings outlook is stable, reflecting PGN's sustained and strong
financial profile, and Moody's expectation that (1) the company
can continue to pass through any cost increases of upstream gas to its
end-users; (2) it will maintain its dominant position in Indonesia's
gas transmission and distribution sector; and (3) its upstream acquisitions
will be measured and sustainable.
The ratings could be upgraded if Indonesia's sovereign rating is
upgraded and if PGN's underlying credit quality remains consistent with
its current BCA of baa3. Absent an upgrade to the sovereign rating,
an upgrade to PGN's ratings is very unlikely because the company's
revenues and most of its funding are from domestic sources.
A downgrade is possible if PGN's underlying credit quality deteriorates
because of (1) an unfavorable regulatory environment that hurts its financial
position; (2) an erosion of its dominant market share under a deregulated
environment, with increased pressure on its profit margins owing
to rising competition; and/or (3) changes in the management's
strategy regarding its upstream business, and which deviates from
Moody's expectations.
Its ratings could come under pressure if its consolidated credit metrics
weaken, such that debt/capitalization increases beyond 60%-65%
or retained cash flow/debt falls below 9% to 13% on a sustained
basis.
Furthermore, a downgrade of the sovereign rating or a change in
the government's shareholding level and supportive policy towards the
gas industry could prompt a review of its ratings.
The principal methodologies used in rating PGN were Regulated Electric
and Gas Utilities, published in December 2013, and Government-Related
Issuers: Methodology Update, published in July 2010.
Please see the Credit Policy page on www.moodys.com for
copies of these methodologies.
Established in 1965, Perusahaan Gas Negara (PGN) is primarily engaged
in the transmission and distribution of natural gas. Its transmission
business mainly operates under its 60%-owned subsidiary,
PT Transportasi Gas Indonesia, while its distribution business has
a strong market share of 79% as of 31 December 2013.
In the financial year ended 31 December 2013, PGN generated total
revenue of $3.0 billion. Of this total, around
92% came from its gas distribution business, while the remainder
mostly came from its transmission business. PGN is publicly listed,
with a market capitalization of $11.5 billion as of 28 April
2014. The Indonesian government, through the Ministry of
State-Owned Enterprises, owns 57% of the company.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Ray Tay
Asst Vice President - 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
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Patrick Mispagel
Associate Managing Director
Project & Infrastructure Finance
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (65) 6398-8308
Moody's affirms PGN's Baa3 issuer rating; assigns (P)Baa3 to proposed senior unsecured bonds