Fitch: Indonesia's Pertamina at 'BBB-'/Stable

(Singapore-30 April 2013) -- Fitch Ratings has affirmed PT Pertamina (Persero)'s (Pertamina) Long-Term Foreign-Currency IDR at 'BBB-' with Stable Outlook. Its senior unsecured rating and existing senior unsecured notes have also been affirmed at 'BBB-'.

Equalised with sovereign: Pertamina's ratings are aligned with those of its parent, The Republic of Indonesia (BBB-/Stable), due to strong legal, operating and strategic linkages, as per Fitch's Parent and Subsidiary Linkage methodology. Pertamina is one of the most important state-linked entities in executing Indonesia's national energy policy and is the country's sole refiner and dominant retailer of petroleum products.

Public service obligation: The company performs a public service obligation by selling certain refined products below market prices, for which it is compensated through a government subsidy. Over 50% of Pertamina's sales are derived from the sale of these subsidised products, and its EBITDA would be negative if not for this compensating subsidy. Fitch expects the support Pertamina receives in the form of subsidy reimbursements to remain intact in the foreseeable future, as raising prices of the subsidised products remains politically challenging.

Deteriorating credit metrics: Fitch expects Pertamina's credit metrics to weaken from 2012 levels. The company intends to materially step up its investments and capex to increase upstream production and refinery operating flexibility in the medium term. Pertamina's funds from operations (FFO)-adjusted net leverage was 1.2x and FFO interest coverage was 14x in 2012.

Adequate Liquidity: Despite likely negative free cash flows in the next few years, Fitch expects Pertamina's liquidity to remain adequate due to access to bank funding and debt markets given its strong state linkages. (ends)