Moody's assigns (P)Baa3 to Pertamina's MTN drawdown
Thursday, May 22 2014 - 10:23 AM WIB
The rating outlook is stable.
The notes are to be issued under Pertamina's existing $10 billion Global Medium-Term Note program, which is rated at (P)Baa3.
Pertamina plans to use the proceeds to finance capital expenditures and for general corporate purposes.
Pertamina's Baa3 issuer ratings were affirmed on 25 March 2014.
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.
"The rating reflects Pertamina'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," says Vikas Halan, a Moody's Vice President and Senior Credit Officer.
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 rating also accommodates our expectation of higher leverage over the next two years as the company executes its large planned capital expenditure. We expect Pertamina to manage its investment programs in such a way that its financial metrics will remain supportive of its ratings," adds Halan.
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, Our view of additional, exceptional, and high level government support does not result in any further rating uplift. However, should its BCA falls to ba2, its issuer rating may still be maintained at Baa3," adds Halan.
An upgrade of Pertamina's rating is unlikely in the next 18-24 months as more than 90% of its consolidated revenues is derived in Indonesia and most of its operating assets -- both upstream and downstream -- are located within the country.
Given the close link between Pertamina's rating and the sovereign rating, an upgrade of the latter would likely trigger an upgrade of the company.
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 will come under downgrade pressure over the next 12-18 months if its large capex program 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 April 2014 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)