Hong Kong, January 13, 2010 -- Moody's Investors Service has today assigned a Ba2 corporate family
rating to PT Cikarang Listrindo (Cikarang). At the same time,
Moody's has assigned a provisional (P)Ba2 rating to the senior secured
notes to be issued by Listrindo Capital B.V., and
which will be unconditionally and irrevocably guaranteed by Cikarang.
The outlook on both ratings is stable.
Moody's expects to remove the (P)Ba2 rating for the senior secured notes
from its provisional status upon completion of the issuance.
The majority of the note proceeds will be used to repay existing bank
loans and the remainder to fund the balance of Cikarang's capacity
expansion program and for general corporate purposes.
"Cikarang's ratings reflect its exclusive IPP license for providing electricity
to a large and diversified base of industrial estate customers,
its offtake agreement with PLN (Ba2/stable), as well as track records
of solid demand growth and payment records from the industrial estate
customer base, even during the Asian financial crisis in 1997 and
the more recent economic slowdown," says Jennifer Wong, Moody's
lead analyst for the company.
"The ratings also reflect the company's strong reliability, strong
operating performance, and its robust tariff structure --
which allows for foreign exchange and natural gas cost pass-through
-- and its strong management team," adds Wong.
"At the same time, the ratings are constrained by its offtake risk
exposure to PLN and a moderate degree of uncertainty regarding the extent
of demand for the additional capacity that will come from its expansion
program," says Wong.
"Furthermore, there is certain degree of execution risk associated
with the capacity expansion, even though Cikarang has a track record
in managing such expansion and the fact that the program is generally
on schedule and within budget," says Wong. "In addition,
a lack of operational flexibility, given the company's single
location plant and relatively small capacity, is apparent."
Moody's also notes that -- post the note issue -- all
of Cikarang's debt will be in one bullet maturity, creating
refinancing risk that is unusual and which would represent a weakness
for the company.
Further, the future financial profile of the company is subject
to a degree of uncertainty, given the move from secured bank lending
and restrictive covenants to the more relaxed high-yield bond covenants.
Moody's notes that the expansion plan will be completed in 2010,
and while such covenants do provide some restrictions, they do not
completely prevent further debt being raised, if Cikarang so wishes.
Cikarang's average projected Cash Available for Debt Service (CAFDS)/Mandatory
Debt Service of around 3.0x and FFO/Debt of around 20% are
appropriate for the Ba2 rating, and in line with Moody's Power
Generation Projects methodology.
Moody's believes that Cikarang has a relatively predictable business,
and which has some similarities -- on a small scale --
to that of a utility, given the captive industrial user base.
The stable outlook reflects Moody's expectation that Cikarang will continue
to benefit from the strong demand from the industrial estates.
Upward rating pressure will be limited in the near to medium term,
given the uncertainty over the offtake arrangement with PLN and the execution
risks associated with the capacity expansion.
But the rating will likely be upgraded in the longer term if Cikarang
concludes new offtake arrangements with PLN, and which extend the
term of the contract for existing capacity, as well as taking part
of the capacity currently being built. In addition, it will
be important that Cikarang maintains its current strong operational and
Key metrics that Moody's would look for in the case of a rating upgrade
include: RCF/Debt in the 15-20% range and Debt/EBITDA
in the 3-4 times range on a consistent basis. Furthermore,
an upgrade in PLN's rating could also positively impact Cikarang's
rating, assuming new offtake arrangements are finalized.
On the other hand, negative rating pressure will emerge if Cikarang
(1) is unable to finalize the offtake arrangements with PLN at a favorable
tariff; (2) cannot execute its capacity expansion on schedule and
within budget; or (3) there is a significant deterioration in Cikarang's
operational and financial profile.
In this context, financial metrics that would indicate downward
rating pressure include RCF/Debt falling below 10-15% and/or
Debt/EBITDA falling below 4.5 times. A downgrade in PLN's
rating could also pressure the rating.
The principal methodology used in rating Cikarang was Moody's Rating Methodology
for Power Generation Projects, December 2008, which can be
found at www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found in the Rating Methodologies sub-directory on Moody's
The last rating action on Cikarang was 4 February 2009 when Moody's withdrew
the Ba3 corporate family rating and the (P)Ba3 senior secured bond rating
because of business reasons.
PT Cikarang Listrindo (Cikarang) is the exclusive IPP supplier of electricity
to a wide range of mostly foreign-owned companies in five industrial
estates in the Cikarang area outside of Jakarta. It owns and operates
a 518MW natural gas-fired combined cycle power station, and
distributes directly to the companies located on the industrial estates.
Its current capacity expansion plan, upon completion, will
increase the company's installed generation capacity to 646MW.
It also has an offtake agreement for part of its power with PT Perusahaan
Listrik Negara (PLN, Ba2/stable). Cikarang is owned by 3
Jennifer W. Wong
Asst Vice President - Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Moody's assigns Ba2 ratings to Cikarang Listrindo; outlook stable
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308