Fitch Affirms Star Energy Geothermal (Salak-Darajat) RG's Notes at 'BBB-'; Outlook Stable

(Fitch Ratings - Hong Kong/Singapore - 26 Sep 2025)--Fitch Ratings has affirmed Star Energy Geothermal (Salak-Darajat) Restricted Group's (SEGSD RG) USD320 million senior secured notes due 2029 and USD790 million senior secured notes due 2038 at 'BBB-'. The Outlook is Stable.

RATING RATIONALE

The rating reflects the assets' stable operating performance and visible revenue stream, which are underpinned by take-or-pay energy sale contracts (ESCs) covering the use of geothermal resources and the sale of steam and electricity to Indonesian state-owned power company PT Perusahaan Listrik Negara (Persero) (PLN, BBB/Stable).

SEGSD RG plans to add 47MW of capacity (40MW at Salak Unit 7 and 7MW via the Darajat Unit 3 retrofit) with commercial operation dates targeted for 2H26. Budgeted capex is USD159.2 million, funded mainly with equity (including USD102 million of injections), a modest USD25 million term-loan draw and the remainder from internal cash flow. The expansion should lift revenue and cash flow with limited pressure on debt service, supporting stronger operating economics and an improved financial profile.

However, positive rating action depends on visibility into lifetime extension (LTE) capex, to be informed by the 2026-2028 lifetime assessment (LTA). An independent geothermal consultant indicates target generation can be sustained over the ESC tenors, but this depends on timely make-up drilling and well interventions, which carry inherent timing and cost uncertainty for geothermal assets.

The achieved average debt service coverage ratio (DSCR), including expansion, indicates a stronger financial profile than implied by the note rating, which remains constrained by uncertainty around the scope, timing and magnitude of LTE capex and by the cost-plus nature of SEGSD RG's operation and maintenance contracts that limits operating leverage. On-time, on-budget delivery of the expansion and a lower-risk LTE plan would be the key catalysts for positive rating action.

KEY RATING DRIVERS

Robust Operating Record; Inherent Volatility in Resource Supply: Operation Risk - Weaker

SEGSD RG operates the Salak and Darajat geothermal plants with an in-house team and a solid record. The absence of a fixed operations and maintenance contract poses risks of cost overruns and variability, particularly for drilling, but stable operating history and independently verified budgets and capital plans temper this risk. Natural resource decline necessitates overhauls and make-up wells to sustain steam supply.

The notes require a major maintenance reserve account to prefund one-third of estimated major drilling capex, Salak binary development capex and major maintenance capex over the next three years. However, uncertainty over drilling capex timing and size constrains the operating risk assessment. Both plants face seismic and landslide risks common in Indonesia; at Salak, an international consultant identified four high-risk landslide areas, and countermeasures have been implemented.

Detailed Capex Plan to Support Resource Supply: Revenue Risk - Volume - Midrange

SEGSD RG's steam supply risk is mitigated by an independently verified 20-year capital plan that provides visibility on well workovers and make up drilling. The 47MW expansion targeted for commercial operation in 2H26 should lift cash flow and strengthen the financial profile, assuming on-time, on-budget delivery. Independently proven resources support generation through 2040 for Salak and 2047 for Darajat, providing medium term volume certainty, but long dated resource risk persists. Take or pay energy sales contracts requiring PLN to pay for 80%-95% of rated capacity limit curtailment risk and anchor revenue predictability regardless of dispatch.

Supportive Long-Term ESCs: Revenue Risk - Price - Stronger

All capacity at both plants is fully contracted with PLN under long-term ESCs that extend beyond the debt tenor, eliminating merchant price risk. The tariffs under the ESCs are fixed using transparent, public formulas. Inflation and exchange-rate risks are mitigated through indexation to Indonesia's CPI, the US CPI and producer price index, and the US dollar-Indonesian rupiah exchange rate. Contracted capacity exceeding installed capacity is a credit positive, enabling incremental output from new units to flow into the existing tariff framework and preserving margins during ramp-up.

Fully Amortising Debt: Debt Structure - Midrange

The debt consists of two tranches of senior secured notes that rank pari passu and are fully amortising in a sequential manner, with the longer-dated tranche maturing two years before the earliest expiry of the ESCs. Creditors benefit from protective structural features such as a 12-month debt service reserve account (DSRA) and restrictions on distributions via a backward-looking test set at 1.15x the DSCR.

The security package includes capital stocks in the co-issuers and guarantors, and security over the DSRA and maintenance and major repairs account (MMRA). However, regulatory restrictions in Indonesia exclude the project contracts, such as the ESCs and joint operating contracts, and generation assets from the security package.

Financial Profile

Fitch views average and minimum DSCRs as key metrics to evaluate cash-flow resilience for SEGSD RG, given the fully amortising nature of the debt. Fitch's base case primarily adopts management's assumptions for generation and the make-up-well drilling schedule. Under the base case, the annual DSCR averages 2.65x over 2026-2038, with a minimum of 1.86x. Fitch's rating case applies combined stresses: a 3% reduction in generation, 15% stress on operating costs and 10% stress on existing capex and expansion capex. The average and minimum DSCRs are 2.42x and 1.66x, respectively, under the rating case.

PEER GROUP

Fitch rates the US dollar secured bonds issued by Star Energy Geothermal (Wayang Windu) Ltd. (SEGWW) at 'BB-'/ Positive. SEGSD RG's higher rating reflects its economies of scale, longer operating history, lower capex required per unit of its capacity and stronger reserve requirements within its debt structure than that of SEGWW.

SEGSD RG's rating case annual DSCR of 2.42x is supported by a lower initial debt load. In comparison, SEGWW's rating case DSCR is much lower at 1.34x despite higher tariffs. SEGSD RG benefits from economies of scale and diversification across nine generation units in two sites. In comparison, SEGWW operates only two units in a single site. The dry steam reservoir in the Darajat operation also gives SEGSD RG cost advantages over SEGWW. SEGSD RG has lower capex per MW than SEGWW, since the restricted group operates only six of the 10 turbine units (including the binary unit), with the remaining four units operated and maintained by PLN.

SEGSD RG's debt structure has stronger protections for noteholders, including a more robust reserve feature, with MMRA equal to a third of total capex in the next three years, while SEGWW's MMRA is equal to planned maintenance costs for the next six months and prefunding of 25% of the major drilling programme for each half-year period over the next two years. In addition, SEGSD RG's distribution lock-up ratio of 1.15x the 12-month backward-looking DSCR is stricter than SEGWW's 1.10x. However, the exclusion of generation assets makes SEGSD RG's security package weaker than that of SEGWW.

We also regard PT Sorik Marapi Geothermal Power (SMGP, senior secured rating: BB+/Stable) as a comparable peer. Both companies operate geothermal power plants in Indonesia under long-term PPAs with a take-or-pay structure. However, the higher rating on SEGSD RG's notes is supported by its longer operating history, larger economic scale, greater predictability of energy production backed by a robust capex plan and lack of refinancing risk due to its fully amortising debt structure.

SMGP's 3.0x DSCR during the refinancing period under our rating case is stronger than SEGSD RG's 2.42x, but SMGP's credit profile is constrained by long-term production uncertainty and refinancing risk associated with its partially amortising structure that has a mandatory cash sweep. SEGSD RG also benefits from economies of scale and diversification across nine generation units at its two sites. In comparison, we expect SMGP to operate five units at a single site, with total net installed generation capacity of around 190MW for the existing five units.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Average annual DSCR under Fitch's rating case across debt terms dropping to below 1.55x.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Positive rating action is contingent upon clear visibility over the LTE capex following the LTA, combined with average annual DSCR under Fitch's rating case across debt terms remaining above 1.65x.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores. (ends)