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Rating Action:

Moody's affirms Pelindo II and Pelindo III's ratings

11 Apr 2016

Singapore, April 11, 2016 -- Moody's Investors Service has affirmed Pelabuhan Indonesia II (Persero) (P.T.) (Pelindo II) and Pelabuhan Indonesia III (Persero) (P.T.)'s (Pelindo III) Baa3 issuer and senior unsecured ratings.

Moody's also lowered Pelindo III's baseline credit assessment (BCA) to ba1 from baa3, reflecting the company's standalone credit quality.

The ratings outlook is stable.

Issuer: Pelabuhan Indonesia II (Persero) (P.T.)

Ratings Affirmed:

.... Issuer Rating, Affirmed at Baa3

.... Senior Unsecured Notes Ratings, Affirmed at Baa3

Issuer: Pelabuhan Indonesia III (Persero) (P.T.)

Ratings Affirmed:

.... Issuer Rating, Affirmed at Baa3

.... Senior Unsecured Notes Rating, Affirmed at Baa3

RATINGS RATIONALE

Pelindo II's Baa3 ratings reflect its BCA, and do not factor in any uplift based on likely support from the Government of Indonesia (Baa3 stable) in times of need, because Pelindo II's BCA is at the same baa3 rating level as Indonesia's sovereign rating of Baa3.

Nevertheless, Moody's believes that the Indonesian government will provide a high level of support to Pelindo II in times of need, based on the government's full ownership of the company, and the fact that Pelindo II plays a pivotal role in Indonesia's maritime transportation sector.

Pelindo III's Baa3 issuer rating reflects: (1) its BCA of ba1; and (2) a one-notch uplift based on Moody's expectation that the company will receive a strong level of support from the Indonesian government in times of need. Moody's assumption of support is consistent with Moody's joint-default analysis approach for government-related issuers.

Moody's explains that the BCAs of Pelindo II and Pelindo III are underpinned by: 1) their dominant position in Indonesia, and in an industry with high barriers to entry; and 2) continued favorable domestic industry dynamics.

However, Moody's notes that the volatile global macroeconomic environment has resulted in a challenging global trade environment, which is in turn affecting the financial profiles of the two companies.

"Despite the global macroeconomic uncertainty, both companies continue to project significant expansionary capex, resulting in weakening financial metrics," says Ray Tay, a Moody's Vice President and Senior Analyst.

"Nevertheless, Pelindo II's business profile features greater recurring income; such income is largely insulated from volume risk when compared with Pelindo III's operations," adds Tay. "Such a situation partially mitigates the impact of Pelindo II's weakening throughput, which is a result of global macroeconomic uncertainty."

Nonetheless, there is limited headroom in Pelindo II's BCA because the company's financial metrics are only marginally better than Pelindo III's and as the gateway for Indonesia's international trade, it will be more exposed to the volatile global trade environment.

The ratings outlook is stable, reflecting Pelindo II and Pelindo III's stable underlying business and financial profiles, and Moody's expectation that: (1) the companies will maintain their dominant positions in their respective areas of coverage; (2) the companies' capex plans will experience minimal cost or schedule overruns; and (3) there will be no material changes to the their ownership at least over the next two to three years.

Pelindo II's ratings could be upgraded if Indonesia's sovereign rating is upgraded, and if the company's underlying credit quality remains consistent with its BCA. Absent an upgrade to the sovereign rating, an upgrade to Pelindo II's ratings is very unlikely, because the company's business profile is highly dependent on the Indonesian economy.

Given Pelindo III's weaker financial metrics when compared with Pelindo II and the one notch of uplift based on Moody's assumption that the company will receive government support in times of need, Pelindo III's ratings are unlikely to be upgraded without both a material improvement in its BCA and an upgrade to the sovereign rating.

Moody's could lower the BCAs of Pelindo II and Pelindo III if their underlying credit quality deteriorates because of: (1) unfavorable regulatory changes that negatively affect their financial positions; (2) an erosion of their dominant market share in Indonesia, and increased pressure on their profit margins owing to stronger competition; and/or (3) significant cost overruns on their capex plans.

In addition, downward ratings pressure on Pelindo II's ratings could arise if the additional recurring income from the extension of its JICT and Koja terminals is below Moody's expectations, weakening its credit metrics, such that the company's funds from operations (FFO)/debt falls below 8%-10% and/or cash interest coverage falls below 2.25x-3.00x on a sustained basis.

Pelindo III's ratings could come under pressure if its consolidated credit metrics weaken, such that FFO/debt falls below 6-8% or cash interest coverage falls below 1.5x-2.25x on a sustained basis.

Furthermore, a downgrade of the sovereign rating, or a change in the government's shareholding or supportive policies towards the ports industry, could prompt a review of the ratings for Pelindo II and Pelindo III.

The methodologies used in these ratings were Privately Managed Port Companies published in May 2013, and Government-Related Issuers published in October 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

Pelabuhan Indonesia II (Persero) (P.T.)—also known as the Indonesian Port Corporation (IPC)—is Indonesia's largest port operator, with 12 ports across 10 provinces in Western Java, Sumatra and Kalimantan.

It handled container throughput of 5.9 million 20-foot equivalent units (TEUs) or about 45% of Indonesia's entire container throughput in 2015. It also operates Indonesia's largest and busiest container port, Tanjung Priok in Jakarta, which includes MTI, JICT and Koja. Tanjung Priok handled over 5.1 million TEUs in 2015. The port is also Indonesia's main international container gateway.

Pelabuhan Indonesia III (Persero) (P.T.) is Indonesia's second largest port operator with 43 ports across seven provinces in central and eastern Indonesia. It handled container throughput of 4.4 million TEUs or about 33% of Indonesia's entire container throughput in 2015. It operates the Tanjung Perak port, Indonesia's second busiest container port, and which handled 3.1 million TEUs in 2015.

The Pelindo companies are wholly owned by the Ministry of State Owned Enterprises, and regulated by the Ministry of Transportation.

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 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.

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
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
SUBSCRIBERS: (852) 3551-3077

Terry Fanous
MD-Public, Proj & Infstr Fin
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: (852) 3551-3077

Moody's affirms Pelindo II and Pelindo III's ratings
No Related Data.
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