Fitch Ratings: Perusahaan Gas’s Tender Offer Credit Neutral, Including for Subsidiaries

(Fitch Ratings-Singapore-21 May 2023)--The tender offer announced by Indonesia’s PT Perusahaan Gas Negara Tbk (PGN, BBB-/Stable), if accepted by the holders of its USD950 million notes due 2024, will be credit neutral for PGN’s rating and the rating of its subsidiary, PT Saka Energi Indonesia (B+/Stable), says Fitch Ratings.

PGN plans to purchase its outstanding 5.125% senior notes due 2024 using cash and loans. We believe the tender offer for all of PGN’s US-dollar bonds supports the company’s liability management and eases refinancing risk. PGN had USD1.6 billion in readily available cash at end-March 2023, while its debt maturities within 12 months were only USD17 million. The tender offer, if successful, will reduce refinancing requirements for PGN’s bonds when they mature.

We expect PGN to successfully refinance a proportion of the bonds through bank loans, extending its debt maturity profile to 2028, and for the refinanced loans to maintain cross-default provisions between PGN and its significant subsidiaries, including Saka. The loans are likely to stay high in the medium-term and we continue to assess PGN’s legal incentive to support Saka as ‘Medium’ under our Parent and Subsidiary Linkage Rating Criteria due to the presence of cross-default clauses. We also maintain our assessment of ‘Medium’ operational and ‘Weak’ strategic incentives, which supports our assessment of a ‘Medium’ incentive for PGN to support Saka.

Saka also continues to benefit from strong oil and gas prices, which buoyed its positive free cash flow in 2022 and led to a cash balance of USD408 million (2021: USD289 million). We expect the company to continue generating positive free cash flow during 2023, though it is likely to be modestly lower than in 2022 based on our oil and gas price assumptions. Consequently, Saka’s 2024 bond maturity refinancing requirements should be minimal, if any, reducing refinancing risk.

PGN’s rating is one notch below that of its immediate parent, PT Pertamina (Persero) (BBB/Stable), based on our assessment of ‘Medium’ incentives for Pertamina to support PGN under our Parent and Subsidiary Linkage Rating Criteria. (ends)