Moody's changes Cikarang's ratings outlook to stable
Wednesday, July 17 2013 - 06:52 AM WIB
Moody's has also affirmed Cikarang's Ba2 corporate family rating and senior unsecured bond rating. The bond is issued by Listrindo Capital B.V., and is unconditionally and irrevocably guaranteed by Cikarang Listrindo.
"The stable outlook reflects better visibility on the company's capacity expansion program that is currently underway. The coal-fired power project is progressing according to schedule, in terms of equipment procurement and construction works, and has remained within its budget thus far," says Ray Tay, a Moody's Associate Vice President and Analyst.
"We expect the 280MW coal-fired power project to maintain its initial capex of $475 million and to commence full operations in late 2016. Furthermore, the business fundamentals of Cikarang remains stable over the past 18 months, reflecting its strong market position, sound operating performance, good electricity demand, robust tariff structure with full cost pass through mechanism and manageable gas supply risk ," adds Tay, who is also the Lead Analyst for Cikarang.
The progress of the coal-fired power project is in line with the projected timeline set in 2011. The company has completed its land acquisition and the procurement of key equipment, and started its site preparation. The total contract value in relation to equipment procurement and construction placed up to June 2013 represents 44% of the total capex.
Moody's notes that execution risks will remain until the full commissioning of the project in late 2016. There is also uncertainty on long-term coal supply contracts, as Cikarang will be able to secure them only closer to the commissioning of the project. Nevertheless, the risk of securing a coal supply is moderate given the coal-fired power project will use sub-bituminous coal which is readily available in Indonesia.
However, strong electricity demand from industrial-estate customers partially mitigates the medium-term uncertainty over capacity utilization and future operating cash flow when one of the company's two existing 150MW take-or-pay contracts with PT Perusahaan Listrik Negara (PLN, Baa3 stable) expires in January 2016.
In addition, Cikarang has just finalized the renewal of its gas supply contract with PGN, and which lowers its gas supply risk in the near term. It also plans to add another 109MW gas-fired power plant as backup unit for peak demand by 2014
Cikarang's Ba2 ratings are supported by its status as the sole independent power producer supplying electricity to a large and diversified base of industrial-estate customers in Indonesia, its off-take agreements with PLN, as well as the track record of solid demand and the payment record of its customers throughout the economic cycle.
The ratings also reflect the company's strong operating performance and liquidity position, its robust tariff structure and its strong management team.
On the other hand, the ratings are constrained by the current lack of operational flexibility, given the company's single site and its relatively small capacity, and a moderate degree of uncertainty regarding the extent of demand for the additional capacity to come from its expansion programs, as well as its off-take risk exposure to PLN.
Moody's believes that Cikarang has a predictable business, which has some similarities -- on a small scale -- to that of a utility, given its captive industrial-user base.
Upward rating pressure will be limited in the near to medium term, given the remaining execution risk associated with the capacity expansion and because the new capacity additions will only commence operations at end-2016.
Moody's would consider upgrading the ratings if the company's retained cash flow (RCF)/debt exceeds 25% and/or debt/ EBITDA stays below 2x on a sustainable basis.
The rating will be under pressure if: (1) Cikarang suffers financial strain due to unforeseen cost overruns and related delays to its capacity expansion project, or (2) there is a significant deterioration in its operational and financial profiles which will result in a RCF/debt of below 10%-12% and/or debt/EBITDA of more than 4x over an extended period.
The principal methodology used in this rating was Power Generation Projects published in December 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
PT Cikarang Listrindo (Cikarang) is the sole IPP supplier of electricity to a wide range of mostly foreign-owned companies in five industrial estates in the Cikarang area outside of Jakarta. It owns and operates a 755MW natural gas-fired combined cycle power station, and distributes directly to companies on the industrial estates.
Its capacity expansion plan, upon completion, will increase installed generation capacity to 1,144MW by end-2016. It also has an off-take agreement for part of its power with PT Perusahaan Listrik Negara (PLN, Baa3 stable). Cikarang is owned by three Indonesian families. (ends)