Fitch: Pertamina's USD3.25bn Bonds Final 'BBB-'
Thursday, May 16 2013 - 05:05 AM WIB
The assignment of the final rating is in line with the expected rating assigned on 5 May 2013 and follows a review of final documentation materially conforming to the draft documentation previously reviewed.
The notes are rated at the same level as Pertamina's Issuer Default Rating of 'BBB-', as they constitute direct, unconditional and senior unsecured obligations of the company.
The proceeds from the bond issue are to be used for Pertamina's capex and general corporate purposes. Pertamina is expected to step up its capex significantly in the medium term to increase upstream production and refinery operating flexibility.
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 meaningfully increasing prices of the subsidised products remains politically challenging.
Deteriorating credit metrics: Fitch expects Pertamina's credit metrics to weaken from 2012 levels as the company intends to materially increase its capex and investments in the medium term. Despite likely negative free cash flows in the next few years, Fitch expects Pertamina's liquidity to remain adequate due to access to bank and debt markets given its strong state linkages. Pertamina's funds from operations (FFO)-adjusted net leverage was 1.2x and FFO interest coverage was 14x in 2012. (ends)