Fitch affirms Indonesia's Star Energy Geothermal at 'B+'

(Singapore-06 March 2013) -- Fitch Ratings has affirmed Indonesia-based Star Energy Geothermal (Wayang Windu) Limited's (SEG) Long-Term Issuer Default Rating (IDR) at 'B+'. The Outlook is Stable. At the same time, the agency has affirmed the remaining USD337.5m of SEG's USD350m senior secured notes due in 2015 at 'B+' with a Recovery Rating of 'RR4'.

SEG's ratings reflect the geological risks inherent to operating in an active seismic area and the capital-intensive nature of its operations. They also reflect the high visibility of its earnings, given its reliable operating performance, and its long-term 'take or pay' energy sales contract (ESC).

SEG's ratings are constrained by geological risks, particularly given its single-site operation. This risk is partly mitigated by SEG's insurance policies, which cover most plant costs and up to 24 months of business interruption.

Uncertainties associated with SEG's potential expansions further constrain the ratings. Capex in relation to any capacity additions of a meaningful scale could be substantial in relation to SEG's balance sheet. SEG has indefinitely postponed its plans of constructing an additional power plant, due to unfavourable drilling results to date. However, the company continues to assess the viability of further capacity additions.

SEG's capacity factor has averaged above 97% since it started operating in 2000, which compares favourably with the global average for geothermal operators of around 73%. Its geothermal resources also remain adequate to operate at its current capacity for another 30 years. SEG's energy sales are based on an ESC with the state power utility, PT Perusahaan Listrik Negara (PLN; BBB- /Stable), which provides for tariff adjustments for movements in exchange rates and inflation. The company has not faced any material payment delays from PLN, the sole off-taker of electricity generated by SEG, since 2004.

SEG's continues to maintain adequate leverage and sound liquidity for its ratings. Funds from operations (FFO)-adjusted net leverage (excluding the USD102m of subordinated, interest free shareholder loan), was 2.4x at 9M12 (2.1x in FY11). The company had cash reserves of USD139m as of end-December 2012, which is more than adequate to repay the annual amortisation of USD25m in both 2013 and 2014 of its five-year senior secured USD notes, given its moderate non-discretionary capex requirement. (ends)