Singapore, October 19, 2018 -- 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 rating outlook is stable.
The notes will be issued under Pertamina's $10 billion global
medium term note program, which is rated (P)Baa2.
Pertamina plans to use the proceeds to finance the tender offer for its
outstanding $1 billion 5.25% senior notes due 2021
and $1.25 billion 4.875% senior notes due
2022. The remaining proceeds will be used for capital expenditures
and general corporate purposes.
RATINGS RATIONALE
Pertamina Baa2 issuer rating primarily reflects its standalone credit
quality, as captured in its baa3 baseline credit assessment (BCA).
"Pertamina's baa3 BCA reflects its integrated oil and gas
operations, significant upstream production and hydrocarbon reserves,
as well as large-scale downstream business with substantially full
control of Indonesia's refineries, fuel marketing stations
and gas pipelines," says Rachel Chua, a Moody's
Assistant Vice President and Analyst.
At the same time, Pertamina's strengths are balanced by its
exposure to an evolving and unpredictable regulatory environment in Indonesia,
weaker profitability as it absorbs the country's fuel subsidy burden
and a high degree of execution risk associated with its sizable investment
plan.
"The rating also incorporates our expectation of higher leverage
over the next two years owing to company's large capex program,
increased working capital needs in this higher oil price environment and
downstream losses as it continues to absorb the country's fuel subsidy
burden," adds Chua, who is also Moody's Lead Analyst
for Pertamina.
Moody's expect Pertamina's retained cash flow-to-net-debt
will weaken to 22%-25% over the next two years from
51.2% in 2017, but remain within the parameters of
its rating.
The Baa2 issuer rating incorporates Moody's expectation of the very
high likelihood of extraordinary support from the Government of Indonesia
(Baa2 stable) and very high inter-dependence between the two.
Moody's support assessment reflects 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 outlook on Pertamina's ratings is stable, reflecting the
stable outlook of 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) the Indonesian
government's Baa2 rating is upgraded, (2) its BCA is at least maintained
at the current baa3 level and (3) the support assessment incorporated
in the rating remains unchanged.
An upgrade of BCA alone will not result in Pertamina's rating upgrade.
Moody's will consider raising 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) the government ownership at Pertamina is reduced, or the
government control is reduced by some other means, which would require
a reassessment of the level of support incorporated into its ratings.
Downward pressure on Pertamina's BCA could develop if its credit
metrics deteriorate as a result of (1) changes in the fuel pricing framework
that result in a substantial erosion of the company's earnings; or
(2) a large debt-funded expansion, acquisitions or dividend
payments; or (3) a sustained decline in margins or efficiency of
operations.
Credit metrics indicative of deterioration of 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 Global Integrated Oil &
Gas Industry published in October 2016, 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 oil, gas and geothermal exploration and production,
downstream oil refining, marketing, distribution, transportation
and trading of petroleum products.
REGULATORY DISLCOSURES
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.
Rachel Chua
Asst Vice President - Analyst
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
