Fitch Ratings: Dividends from Indonesia-Based Star Energy to Improve Barito's Liquidity

(Fitch Ratings-Singapore-21 October 2020) --  Fitch Ratings says Indonesia-based PT Barito Pacific Tbk's (B/Stable) liquidity would improve from expected dividends of USD52 million from Star Energy Geothermal (Salak-Darajat) Restricted Group (SEGSD RG, senior secured: BBB-(EXP)/Stable), based on its effective shareholding of 34.63%, after the group completes its US-dollar note issuance. SEGSD RG plans to pay USD150 million as an equity distribution within 30 days of the note issuance as per the terms of the note indenture.

Fitch expects the dividends to improve Barito's interest cover at the holding company level to 1.9x in 2020 and 0.8x in 2021 (2019: 0.7x), against our earlier expectation of -0.3x and 0.4x, respectively. Barito's cash of about USD71 million at end-June 2020, along with total expected dividends of USD56 million - USD52 million from SEGSD RG and USD4 million from Star Energy Geothermal (Wayang Windu) Ltd. - will cover its scheduled debt repayment of about USD50 million and interest costs of around USD25 million over the next 12 months. We believe Barito may also use part of the dividend receipts to reduce debt, though it has not confirmed any plans, but expect the holding company's interest cover to remain below 1.5x - one of the upgrade sensitivities - over the next 18-24 months.

We expect Barito group's net leverage - measured as net debt/EBITDA, with 47% owned subsidiary, PT Chandra Asri Petrochemical Tbk (CAP, BB-/Stable), and Star Energy proportionately consolidated - to marginally increase to 5.2x in 2020 (2019: 3.9x) from our earlier estimate of 5.0x due to higher borrowings at SEGSD RG following the US-dollar note issuance. In addition to the equity distribution, SEGSD RG will use the balance of the note proceeds mainly to repay senior debt facilities and associated repayment expenses.

We expect Barito group's net leverage to decline to below 4.0x in 2021 following a better operating performance at CAP along with enhanced dividends from SEGSD RG. We expect Barito to receive regular annual dividends in the range of USD15 million-25 million from SEGSD RG from 2021.

Fitch downgraded Barito's rating to 'B', from 'B+', in September 2020, due to weakening of group net leverage and the holding company's interest cover after it took out a USD253 million loan for a joint venture investment; the Jawa 9 and10 coal-fired power projects undertaken by PT Indo Raya Tenaga. We also expect tighter petrochemical product spreads at CAP to result in lower EBITDA and consequently a lower dividend payout in the near term. (Ends)