Fitch upgrades Perusahaan Gas Negara's IDRs to 'BB'; outlook stable

(Jakarta/Singapore-18 March 2009) Fitch Ratings has today upgraded PT Perusahaan Gas Negara's (PGN) Long-term foreign and local currency Issuer Default Ratings (IDR) to 'BB' from 'BB-' (BB minus) and affirmed its National Long-term rating at 'AA(idn)'. The Outlook is Stable. Fitch has also upgraded PGN Euro Finance 2003 Limited's USD125m notes due in 2014 and USD150m notes due in 2013, guaranteed by PGN and its subsidiaries, to 'BB' from 'BB-' (BB minus).

The upgrade reflects PGN's improved financial and operating profiles and Fitch's expectation that the company will continue to sustain moderate credit metrics. With the completion of the South Sumatra - West Java (SSWJ) pipeline in August 2008 and the expected completion of the West Java distribution projects in 2010 (initially planned for 2009), the company's operating cash flow and financial profile will be supported by additional cash inflow brought by higher distribution volumes.

Fitch expects PGN's capital expenditure to reduce following the completion of the SSWJ projects, with total capex in 2009 estimated to be approximately USD250m-USD300m (including USD100m-USD150m from 2008 which mainly consists of payments to SSWJ contractors). Fitch expects 2009 net debt/EBITDA to be around 2.0x or lower. PGN's liquidity is not a key credit concern; the company has no significant near-term funding requirements. Beyond the short term, PGN's growth will be boosted by the successful commissioning and operation of the West Java distribution project.

PGN's ratings continue to be supported by its dominant positions in Indonesia's gas distribution and transmission sectors, with a market share of about 93% and 87%, respectively, at end-9M08. Fitch notes that gas sales to the industrial sector, which made up about 98% of PGN's distribution sales have dropped slightly in recent months on the back of adverse macroeconomic conditions; however, the agency believes the further reduction is likely to be mitigated by strong demand from the power sector. During 2008, PGN signed another 260 metric million standard cubic feet per day (mmscfd) to supply PT Perusahaan Listrik Negara, the state-owned electricity company, comprising 200mmscfd to Muara Tawar gas-fired plant, 30mmscfd to Cilegon gas-fired plant and another 30mmscfd to Tanjung Priok gas-fired plant. Nevertheless, PGN's credit profile is affected by exposure to gas supply and price risks, and any mismatch between long-term gas purchase contracts and shorter-term gas sale contracts.

The Stable Outlook reflects the agency's expectation that PGN's net debt/EBITDA will remain around 2.0x or below. Should this ratio rise to above 2.0x on a sustained basis a negative rating action may be taken. Conversely, sustained net debt/EBITDA of less than 1.0x may result in a positive rating action.

PGN is a leading gas transmission and distribution company. At end-September 2008, it reported revenue of IDR9,021bn and EBITDA of IDR4,605bn. PGN continues to enjoy an extended maturity profile for its borrowing with only about 17% of PGN's loans maturing before 2013. As at end-September 2008, PGN had IDR2,291bn cash and annualised net debt/EBITDA of 1.3x. The government of Indonesia owned about 54.58% of the company at end-September 2008, while public shareholders and the company's employees and management held the remaining 45.38% and 0.04% stakes, respectively.(end of release)