Fitch Upgrades Star Energy Geothermal Wayang Windu's Notes to 'BB'; Outlook Stable

(Fitch Ratings - Hong Kong/Singapore - 30 Sep 2025)--Fitch Ratings has upgraded the rating on Star Energy Geothermal (Wayang Windu) Ltd.'s (SEGWW) USD580 million fully amortising 6.75% senior secured notes due 2033 to 'BB', from 'BB-'. The Outlook is Stable.

RATING RATIONALE

The upgrade reflects our expectation that SEGWW's credit profile will strengthen as it continues to expand, building cash flow and scale. The expansion comprises a newly built 30 megawatt (MW) Unit 3 and an 18.4MW retrofit to Units 1 and 2.

We expect 64% of capex for the expansion to be funded with equity or a shareholder loan, both subordinated to the existing notes, around 20% from internal cash and 16% via new debt. This funding mix should allow SEGWW's revenue and cash flow to rise without a commensurate increase in debt service obligations. We forecast an average debt service coverage ratio (DSCR) during the loan tenor under our rating case to reach 1.41x, from 1.34x prior to the expansion plan.

We exclude 2025 figures from our forward-looking multi-year average DSCR calculation but expect the ratio to fall to below 1.00x during the year due to advancement of maintenance capex to 2026 from 2028 to coincide with the expansion. The reserve mechanism also squeezes 2025 cash flow available for debt service. However, we regard this as a timing issue related to capex and it does not alter our overall view.

The rating is also underpinned by SEGWW's strong operational record. We expect a reliable supply of geothermal resources, subject to timely maintenance and planned drilling. SEGWW benefits from long-term energy sales contracts (ESCs) to access geothermal resources and to sell electricity to Indonesia's state-owned utility, PT Perusahaan Listrik Negara (Persero) (PLN, BBB/Stable). Its take-or-pay power-purchase agreement — with a flat tariff for Unit 1 and fixed-indexed tariffs for Units 2 and 3 — largely eliminates volume and merchant price risks.

KEY RATING DRIVERS

Exposed to Cost Volatility; Robust Operating Record: Operation Risk - Weaker

SEGWW has a solid record of high average availability and capacity factors of above 95% for both units, excluding a 2015 outage due to a landslide. SEGWW operates the power plant and the lack of a fixed operation and maintenance contract poses risks of cost overruns and cost variability, especially for drilling activities. This is mitigated by a detailed investment plan for drilling new wells and maintaining existing wells until 2057, which the external technical consultant, GeothermEx, is satisfied with. However, timing is uncertain due to the assets' nature.

Our assessment is constrained by a lack of detailed operating cost analysis and third-party verification. A reserve account will prefund 25% of the well drilling cost in each half-year period for major drilling programmes, with capex exceeding USD100 million over the next two years. The reserve account will also provide for the next six months of planned maintenance costs. While the single-site operation, with only two units, was a limiting factor, expansion, with the addition of the third unit, should alleviate operational risk.

Stable Supply Outlook: Revenue Risk - Volume - Midrange

The volatility and decline inherent in geothermal resources introduce supply risk to electricity generation. However, SEGWW maintains steam supply through a well intervention programme and make-up well drilling. The next campaign is due in 2025-2026 after a successful campaign in 2020-2021. Steam supply was 475 kilograms/second (kg/s) at end-June 2025; 46kg/s above the steam requirement. SEGWW's resources are sufficient to support 280MW of electricity generation for 30 years until 2055, based on GeothermEx's 2022 study.

Curtailment risk is limited by the take-or-pay nature of the ESC, which requires PLN to pay for 95% of the rated capacity of each generator if it does not dispatch all the electricity nominated by SEGWW due to failure in its electrical system.

Long Term Offtake Contracts Support Revenue: Revenue Risk - Price - Stronger

SEGWW has no merchant price risk, as all power is sold to PLN under ESCs. Unit 1's tariff is fixed from 2022 to the end of its production period and can be extended to align with any expansion unit. Bond covenants require USD50 million to be added to the debt reserve account if Unit 1's ESC is not acceptably extended by end 2028, providing a cash cushion from 2030 to bond maturity in 2033. Unit 2's tariff is indexed using public, broad based formulas until February 2031, then becomes flat. Tariffs are US-dollar denominated and partially indexed to the US dollar/Indonesian rupiah rate. SEGWW has no foreign-exchange hedges, leaving it exposed to exchange-rate risk.

Fully Amortising Debt: Debt Structure - Midrange

The debt's senior rank, full amortisation and fixed-coupon rate are 'Stronger' features. However, the six-month debt service reserve account is a 'Midrange' attribute and the lock-up regime, at a 1.1x backward-looking DSCR, is 'Weak' and there is no cash sweep mechanism. The full amortisation that begins in the first year results in steady deleveraging, but cash flow and DSCRs are sensitive to capex timing. Project debt is in US dollars, providing a natural hedge against US-dollar revenue, but some costs, particularly employee compensation, are in rupiah, exposing the project to foreign-exchange risk.

Financial Profile

Our base case largely follows management's forecasts for generation, operating expenses and capital expenditure, with an average annual DSCR forecast of 1.58x and a minimum of 1.25x.

Our rating case applies several stresses. It assumes a 3% reduction in generation across all units, while we apply a 15% stress to opex and a 5% stress to capex. This results in an average annual DSCR of 1.41x and a minimum of 1.13x.

SEGWW's coverage profile reflects the higher lifecycle capex risk associated with geothermal facilities compared with other renewable projects. Resource underperformance, higher than expected capex or reduced operational efficiency could weaken SEGWW's capacity to service debt.

PEER GROUP

We rate the senior secured notes of Star Energy Geothermal (Salak-Darajat) Restricted Group (SEGSD RG), SEGWW's sister company, at 'BBB-' with a Stable Outlook. Both companies operate under long-term take-or-pay ESCs with PLN and their geothermal resources are validated by engineering consultants. However, SEGSD RG's notes are rated higher than SEGWW's notes, as it benefits from a longer operating history, economies of scale and diversification across ten generation units (including binary unit) at two sites. SEGSD RG also has lower required capex/MW of installed capacity, partly because it does not own or operate four of its units, which are operated and maintained by PLN. It also benefits from detailed cost analysis by a technical advisor, which is absent for SEGWW.

SEGSD RG also benefits from a stronger reserve feature, with a major maintenance reserve account equal to a third of total capex in the next three years. In comparison, SEGWW's major maintenance reserve account equals planned maintenance costs for the next six months and prefunding of 25% of the major drilling programme for each half-year period over the next two years. SEGSD RG has a higher lock-up ratio at 1.15x on the basis of a 12-month backward-looking DSCR, compared with SEGWW's 1.10x. SEGSD RG's DSCR under our rating case is also much higher at 2.42x, supported by a lower initial debt load, despite SEGWW's higher tariff.

We rate the notes of PT Sorik Marapi Geothermal Power (SMGP) at 'BB+'/Stable. SEGWW and SGMP operate single sites under long-term take-or-pay ESCs with PLN and receive tariffs that are either fixed or indexed. SMGP's take-or-pay sales contract covers a minimum 90% of the latest unit rated capacity, while SEGWW's ESC is for a minimum 95%. SMGP operates five units, with total net installed generation capacity of around 190MW.

However, we rate SMGP one notch higher than SEGWW due to its better financial profile. SMGP's metric of a 3.0x DSCR during the refinancing period under our rating case is significantly stronger than SEGWW's 1.41x. This is partly due to lower initial debt/MW and ongoing capex/MW. We also believe SEGWW is more exposed to landslide risk, which is heightened by its limited diversification and operating scale. This counterbalances SMGP's higher refinancing risk that stems from partial amortisation and a mandatory cash sweep, a shorter operational record, less proven technology and higher uncertainty about its production decline.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

- Projected average DSCR sustained below 1.35x across the bond tenor in our rating case.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Positive rating action is unlikely over the medium term, due to ongoing capex and is contingent on the projected average DSCR remaining above 1.45x during the forecast period across the bond tenor under our rating case.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores. (ends)