Moody's affirms Pertamina's Baa3 issuer and bond ratings
Tuesday, March 25 2014 - 01:49 PM WIB
At the same time, Moody's has affirmed the provisional (P)Baa3 rating on PT Pertamina (Persero)'s global medium-term notes programme (GMTN).
The ratings outlook is stable.
The Baa3 rating combines (1) Pertamina's fundamental credit quality as expressed in its baseline credit assessment (BCA) of baa3; and (2) its strong support from, and dependence on, the Indonesian government (Baa3/stable) under Moody's joint default analysis (JDA) approach for government-related issuers.
Pertamina is wholly owned by the Indonesian government.
Pertamina's ratings reflect the company's strategically important position as Indonesia's national integrated oil & gas company, contributing significant upstream production, and accounting for all the current refining capacity in the country. It operates at a low-cost and moderate leverage, however Moody's expects Pertamina's leverage to rise over the next two years as the company executes its capital expenditure program.
Pertamina's strengths are balanced by its exposure to moderate regulatory risks associated with a transitioning framework, and execution risks associated with increasing investments in upstream exploration and production, refineries, and potentially acquisitions.
The credit profiles of Pertamina and the Indonesian government are closely linked, given Pertamina's strategic roles in oil & gas exploration as well as product distribution for the country. Additionally, the government closely supervises Pertamina's strategies and budgets. To enable the distribution of subsidized fuels, Pertamina receives compensation from the government. This compensation forms part of the government's annual budget.
As Pertamina's BCA is baa3, which is equivalent to that of the government, Moody's view of additional, exceptional, and high level government support does not result in any further rating uplift. However, should its BCA fall to ba2, its issuer rating may still be maintained at Baa3.
The outlook on the rating is stable, reflecting the stable outlook of Indonesia's sovereign rating.
At the same time, Moody's expects Pertamina to manage its capital expenditure and investment programmes in such a way that its financial metrics will remain supportive of its ratings.
An upgrade of the sovereign rating could trigger an upgrade in Pertamina's rating, given the close links between the two ratings.
Pertamina's issuer rating would be under negative pressure, if a) its BCA falls below ba2; or b) Indonesia's sovereign rating is lowered; or c) there is change in relationship, albeit unexpected, between Pertamina and the Indonesian government resulting in lower expectation of extraordinary support.
Pertamina's BCA would come under downgrade pressure over the next 12-18 months if its large capex programme fails to result in a meaningful increase in production and reserves; and/or the company continues to stretch its balance sheet by taking on additional debt, such that (1) adjusted debt to total proved reserves exceeds $8.0/boe consistently; (2) retained cash flow (RCF) to net debt remains below 15% on a sustained basis; or Adjusted debt to capital exceeds 60% consistently.
The principal methodology used in this rating was the Global Integrated Oil & Gas Industry published in November 2009, and Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
PT Pertamina (Persero) is a 100% Indonesian government-owned, fully-integrated oil and gas corporation, with operations in upstream oil, gas and geothermal exploration and production, downstream oil refining, marketing, distribution, transportation and trading of petroleum products. (ends)