Singapore, February 13, 2020 -- Moody's Investors Service has assigned a Baa2 rating to the proposed
senior unsecured USD notes to be issued by Pertamina (Persero) (P.T.).
The notes will be issued under Pertamina's global medium-term note
program, which is rated (P)Baa2, and the proceeds will be
used for capital spending and general corporate purposes.
The ratings outlook is stable.
RATINGS RATIONALE
Pertamina's Baa2 issuer rating primarily reflects its standalone credit
quality, as captured in its baa3 BCA.
The issuer rating reflects Pertamina's strategically important position
as Indonesia's (Baa2 stable) national integrated oil and gas company,
contributing significant upstream production, and accounting for
substantially all of the country's refineries, fuel marketing stations
and gas pipelines.
At the same time, the rating also takes into account Pertamina's
exposure to an evolving regulatory environment in Indonesia, and
a high degree of execution risk associated with its sizable investment
plan.
The Baa2 issuer rating also incorporates Moody's expectation of the very
high likelihood of extraordinary support from the Government of Indonesia
to Pertamina in times of need, and very high interdependence between
the two parties.
Moody's support assessment is based on Pertamina's strategic importance,
given its important role in oil and gas exploration, petroleum product
distribution and gas distribution in the country, as well as the
government's close supervision of its strategies and budget.
"The rating incorporates our expectation that Pertamina will maintain
credit metrics that are supportive of its ratings, despite the increase
in working capital outflow, due to delayed subsidy reimbursement
and higher capital spending," says Vikas Halan, a Moody's
Senior Vice President.
In 2018, the Government of Indonesia agreed to reimburse Pertamina
for the revenue shortfall arising from the difference between the government-regulated
sale price and market-linked price for specific types of fuel.
However, these reimbursements are not immediately accretive to cash
inflow because they will be paid by installments on a deferred basis starting
in 2020.
As of 30 September 2019, Pertamina had $5.3 billion
of receivables from the Government of Indonesia as against $2.2
billion as of 31 December 2017. The increase is largely on account
of a delay in the receipt of compensation from the government for selling
certain petroleum products at subsidized prices.
"Pertamina expects to start receiving compensation from the government
in installments from this year, which will improve its cash flows,"
says Halan, who is also Moody's Lead Analyst for Pertamina.
Moody's expects Pertamina's capital spending over the next 3 years to
average around $6-$7 billion annually as against
$3 billion over the last three years. The increase in capital
spending will be driven by the company's plan to increase in refining
capacity and efficiency. Also, Pertamina will start spending
in development of new oil & gas that has been awarded by the government
in 2018 and 2019. This will result in increase in company's total
borrowings.
Consequently, Moody's estimates that Pertamina's retained cash flow
to net debt will deteriorate to 27%-28% from about
38% for the 12 months ended September 2019 but will still remain
supportive of its ratings. However, any delay in the disbursement
by the government or continued price-freeze will result in further
deterioration in Pertamina's credit metrics.
In terms of environmental, social and governance factors,
the ratings consider the following:
For environmental factors, Pertamina's issuer rating incorporates
the environment risk that the company is exposed to through its oil &
gas businesses. Nevertheless, the risk is somewhat mitigated
by the high proportion of natural gas in its production mix, which
accounted for about 57% of its total oil & gas production in
2018.
With regards to social factors, Pertamina's business mix includes
sectors that are exposed to moderate to high social risks, especially
issues related to responsible production and health & safety.
This social risk is mitigated by the company's long track record of operating
its businesses without any major incidents.
As for governance factors, the issuer rating incorporates Pertamina's
status as a 100% government-owned company, the government
practice of appointing all of Pertamina's Board of Commissioners and its
significant control over the company's operational and financial policies.
Despite being unlisted, Pertamina publishes quarterly financial
statements and maintains a reasonable degree of transparency into its
operating performance. Even though Pertamina does not have publicly
committed financial policies, it has maintained conservative credit
metrics and robust liquidity.
Pertamina's has strong liquidity as of 30 September 2019 with cash and
cash equivalent of $8.1 billion as against debt maturing
over next 12 months of $2.5 billion.
The outlook on Pertamina's ratings is stable, reflecting the stable
outlook for Indonesia's sovereign rating, as well as Moody's expectation
that Pertamina will manage its capital expenditure program, such
that its financial metrics will remain supportive of its BCA.
Moody's will upgrade Pertamina's Baa2 issuer rating if (1) Moody's upgrades
the Indonesian government's Baa2 sovereign rating; (2) the company's
BCA is maintained at least at the current baa3 level; and (3) the
support assessment incorporated in the rating remains unchanged.
An upgrade of the BCA alone will not result in an upgrade of Pertamina's
issuer rating.
Moody's will consider upgrading Pertamina's BCA to baa2 if it (1) establishes
a track record of increasing petroleum product prices in a rising oil
price environment, which will demonstrate the resilience of its
downstream earnings; and (2) demonstrates sustained improvements
in its credit profile and maintains financial discipline as it pursues
growth.
Credit metrics indicative of an improvement in Pertamina's BCA include
retained cash flow (RCF)/net debt exceeding 25%-30%,
adjusted debt/capital below 45%-50%, and EBITDA/interest
exceeding 6x, all on a sustained basis.
Pertamina's issuer rating may face downward pressure if (1) Indonesia's
sovereign rating is lowered; (2) the company's BCA falls below ba2;
or (3) government ownership of Pertamina falls, or government control
is reduced by some other means; factors which would require a reassessment
of the level of government support incorporated into Pertamina's ratings.
Downward pressure on Pertamina's BCA could develop if its credit metrics
deteriorate because of (1) changes in the fuel pricing framework that
result in a substantial erosion of the company's earnings; (2) large
debt-funded expansions, acquisitions or dividend payments;
or (3) a sustained decline in margins or efficiency of operations.
Credit metrics indicative of a deterioration in its BCA to ba1 include
RCF/net debt below 20%, adjusted debt/capital above 55%,
or EBITDA/interest below 5x.
The methodologies used in this rating were Integrated Oil and Gas Methodology
published in September 2019, and Government-Related Issuers
published in June 2018. Please see the Rating Methodologies page
on www.moodys.com for a copy of these methodologies.
Pertamina (Persero) (P.T.) is a 100% Indonesian government-owned,
fully-integrated oil and gas corporation, with operations
in upstream exploration and production, gas transmission and distribution,
and downstream refining and marketing.
REGULATORY DISCLOSURES
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.
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.
Vikas Halan
Senior Vice President
Corporate Finance Group
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
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
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
