Fitch affirms Indonesia's Star Energy Geothermal at 'B+'/Stable
Monday, May 26 2014 - 07:07 AM WIB
SEG's ratings reflect the inherent geological risks of its operations and the capital-intensity of its expansions. The ratings also factor good visibility of its earnings, given its track record of reliable operating performance, and its long-term "take or pay" energy sales contract (ESC).
High Earnings Visibility: SEG's energy sales are based on an ESC expiring in 2036 with the state power utility, PT Perusahaan Listrik Negara (Persero) (PLN; BBB-/Stable), which provides for tariff adjustments for movements in exchange rates and inflation. SEG has not faced any serious payment delays from PLN since 2004.
Stable Operations: SEG has operated at an average net capacity factor of over 95% - above the industry average - since it started operations in 2000. Its geothermal resources, which were independently verified, are able to support 287MW of power generation (its existing capacity is 227MW) up to 2039.
Geological Risks: SEG's ratings reflect the geological risks present in operating in a seismically active area, especially given its single-site operation. This risk is nevertheless mitigated to some extent by insurance policies covering most plant costs, as well as 24 months of business interruption.
Uncertain Expansion: SEG's ratings are currently constrained due to uncertainties associated with potential expansions. Capex in relation to any capacity additions of a meaningful scale could be substantial in relation to SEG's balance sheet. SEG's geothermal resources support the addition of new capacity and the company continues to assess the viability of further capacity additions, in light of both upward tariff renegotiations with PLN and its drilling results pertaining to the permeability of its sub-surface rock.
Adequate Financial Profile: Fitch expects SEG to generate annual EBITDA of between USD80m and USD90m, incur limited maintenance capex and not pay out any substantial dividends in the medium term, which should help it gradually deleverage over the next few years. Fitch also expects SEG's internal cash generation to be adequate to meet its bond maturities of USD30m to USD40m a year between 2017 and 2019.
SEG's funds from operations (FFO)-adjusted net leverage increased to 4.97x in 2013 from 2.97x in 2012. The increase was due to the repayment of USD85m of its subordinated shareholder loan (Fitch has not treated this loan as debt due to its subordinated nature and it being interest-free), as part of a bond refinancing exercise in 2013. (ends)