Fitch Ratings: PGN’s Announced Tender Offer Credit Neutral; Support for Saka Unchanged

(Fitch Ratings-Singapore-28 November 2022)--Fitch Ratings views the announced tender offer by Indonesia’s PT Perusahaan Gas Negara Tbk (PGN, BBB-/Stable) - if accepted by the holders of its USD1.35 billion notes due 2024 - as credit neutral for its own ratings and the ratings on its wholly owned subsidiary PT Saka Energi Indonesia (B+/Negative). This is due to the modest size of the tender cap, leaving a substantial amount of bonds outstanding which contain cross-default provisions between PGN and its significant subsidiaries including Saka.

PGN plans to purchase for cash up to USD400 million of its outstanding 5.125% senior notes due 2024 for a total price up to the tender cap. Fitch regards PGN’s tender offer for part of its US dollar bonds as an opportunistic move for liability management and to manage refinancing risk. PGN had USD1.65 billion in readily available cash at 30 September 2022, while its debt maturities within the following12 months are low at USD30.8 million.

The tender offer, if successful, will reduce the refinancing requirement for PGN’s bonds when they mature in 2024. Nevertheless, we expect cash on balance sheet and cash flow to generated over the next 12 months will remain adequate to repay the bonds in full.

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 Fitch Ratings' Parent and Subsidiary Linkage Rating Criteria.

The cash tender offer has no immediate rating impact on Saka, as we maintain our view of PGN's incentive to support Saka as 'Medium’. We expect PGN’s amount of bonds outstanding following the tender offer to remain sufficiently material and cross-default provision between PGN and its significant subsidiaries to remain intact. We continue to assess Saka’s legal incentive with PGN as ‘Medium’ under Fitch Ratings’ Parent and Subsidiary Linkage Rating Criteria, with the presence of cross-default clauses.

Saka’s rating is on Negative Outlook because of lack of clarity over its medium-term strategy and pressure on its ‘b-' Standalone Credit Profile (SCP) from a weakening operating profile - given its depleting reserves of proved oil and gas in the absence of significant replenishments. (ends)