Fitch: Star Energy's Ratings unaffected by disruption from damaged pipeline

(Singapore-07 May 2015) -- Fitch says that the ratings of Star Energy Geothermal (Wayang Windu) Ltd (SEG; B+/Stable) are not immediately affected by damage to one of its steam pipelines following a landslide on 5 May 2015. The damage halted operations of its two power plants, but SEG expects its operations to be normalised within a month.

The company expects its two geothermal power generation plants to be shut for between two and four weeks. SEG said its power plants were not damaged from the incident. Fitch believes SEG's liquidity is robust enough to support the loss of cash generation during the outage; the company had cash balances of USD75m as at December 2014, which should be adequate to cover its operational expenses and finance costs until operations resume.

Fitch expects SEG's insurance to cover the costs of repairs to the pipeline. Although SEG's insurance also includes business interruption coverage of USD75m over two years, it would only apply if operations are interrupted for more than 45 days.

Fitch expects SEG's EBITDA to reduce by between USD5m and USD10m in 2015 if the plants are inoperable for two to four weeks. This may also result in SEG's FFO net leverage in 2015 marginally exceeding the 5.0x level, at which Fitch may consider negative rating action. The company reported EBITDA of USD87m in FY14.

The ratings of the company are, however, not impacted given the one-off and short-lived nature of the damage caused by the incident. The company has operated at an average net capacity factor of over 95% - above the industry average - since it started operations in 2000. However, the landslide incident highlights the risks associated with its single-site operations, which together with its small scale, constrains its ratings. (ends)