Moody's affirms PLN's Baa2 ratings, downgrades BCA to ba3

(Singapore, May 04, 2020) -- Moody's Investors Service has today affirmed Perusahaan Listrik Negara (P.T.)'s (PLN) Baa2 issuer and senior unsecured ratings and has downgraded its Baseline Credit Assessment (BCA) to ba3 from ba2.

At the same time, Moody's has affirmed the (P)Baa2 rating on PLN's senior unsecured MTN program. Moody's has also affirmed the Baa2 senior unsecured rating for the bond issued by Majapahit Holding BV, PLN's wholly owned subsidiary, and guaranteed by PLN.

The outlook on all ratings remains stable.

RATINGS RATIONALE

PLN's Baa2 rating reflects the application of Moody's rating methodology for government-related issuers (GRIs) (February 2020) that combines: (1) the company's standalone credit quality, or baseline credit assessment (BCA) of ba3; and (2) Moody's assessment of the credit support that the government of Indonesia (Baa2 stable) is likely to provide in a distressed situation, in light of its 100% ownership of PLN.

"The downgrade of PLN's BCA reflects the company's weakening fundamentals, principally driven by a sharp decline in electricity demand over recent months, continued shortfall in receipts from the government and at the same time increased dependence on government subsidies, as well as its very high leverage," says Abhishek Tyagi, a Moody's Vice President and Senior Analyst.

"The ba3 BCA factors in the company's position as Indonesia's only vertically integrated electric utility, including its dominant position in generation, transmission and distribution (T&D)," adds Tyagi.

Moody's expects PLN's financial leverage will remain elevated, given its involvement in national capacity additions programs, namely fast track programs 1 and 2, and a further 35GW program. These programs will likely increase PLN's debt and pressure its key credit metrics over the medium to long term, until the programs are completed.

The four-notch rating uplift reflects Moody's expectation of a very high likelihood of government support in a distressed situation. Such expectation of support considers the 100% government ownership in PLN, plus the strategically important role that PLN plays in Indonesia's critical power sector.

The Baa2 rating also considers the moderate carbon transition risk of PLN despite 42% of its generation capacity being coal-based, because (1) coal continues to be cheapest source of electricity generation, (2) continued policy support for coal-based additions, and (3) its 100% ownership by the Government of Indonesia and its significant strategic importance.

The stable outlook reflects the stable outlook on Indonesia's sovereign rating and PLN's strategically important position as Indonesia's only vertically integrated electric utility, and its close linkage with the government. (ends)