Fitch: No rating impact on PLN from proposed indenture changes
Wednesday, November 2 2011 - 07:44 AM WIB
PLN is seeking amendments through a consent solicitation exercise to modify the definition of capitalized leases in the bond indentures to exclude certain energy procurement and sales contracts with independent power producers. This is a result of proposed changes to relevant Indonesian accounting standards which may apply to PLN, with effect from 1 January 2012, resulting in PLN having to treat certain long-term power purchase agreements and sales contracts with independent power producers as capitalised leases, thereby affecting its leverage and interest coverage ratios.
When analysing PLN's credit quality, Fitch treats long-term energy procurement and sales contracts as a component of its energy supply and operating expenses and does not capitalise these commitments in its financial analysis. Notwithstanding the proposed changes to the accounting treatment of these commitments, Fitch does not expect any credit impact as there will be no change to the underlying economics of these transactions.
Fitch treats contracts of investor-owned utilities or energy retailers as debt-like obligations only on an exception basis. For more information on Fitch's treatment of energy procurement contracts, see "Fitch Publishes Special Report on Utility Sector Power and Gas Purchase Contracts", and "Energy Procurement Contracts: Operating Expense or Debt", both dated 13 October 2011.
PLN is rated Long-Term Foreign-Currency Issuer Default (IDR) 'BB+' with a Positive Outlook. Its foreign currency senior unsecured debt and USD2bn GMTN programme are also rated 'BB+'. Its ratings are on the same level with those of Republic of Indonesia ('BB+'/Positive) given PLN's very strong legal, operating and strategic linkages with the sovereign. (ends)