Moody's revises outlook on Cikarang to positive; affirms Ba2 rating

(Singapore, November 01, 2019) -- Moody's Investors Service has revised the outlook on Cikarang Listrindo (P.T.)'s (Cikarang) ratings to positive from stable.

In addition, Moody's has affirmed Cikarang's Ba2 corporate family and senior unsecured bond ratings.

RATINGS RATIONALE

"The positive outlook reflects the continued improvement in Cikarang's business profile, and our expectation that the company will maintain a solid financial profile and strong liquidity," says Spencer Ng, a Moody's Vice President and Senior Analyst.

Over the last three years, Cikarang has successfully commissioned and ramped up its 280 megawatt (MW) coal-fired power station. At the same time, the company's power sales have grown to 5,108 gigawatt hours (GWh) in 2018 from 4,801 GWh in 2016.

Moody's estimates that Cikarang's retained cashflow (RCF)/debt will stay between 14% and 17% over the next two years, assuming that (1) management will continue to maintain a dividend payout ratio of around 64%, and (2) the company's growth plans -- which will focus on organic opportunities -- will be funded without incurring additional debt.

Cikarang continues to benefit from stable cash flow generation, underpinned by (1) its exclusive licenses to supply electricity in five industrial estates with over 2,400 industrial customers, (2) its solid operating record, and (3) the supportive features in its long-term power supply agreements with customers, which help mitigate its exposure to fluctuations in fuel costs.

These credit strengths offset Cikarang's reliance on fuel supply from third parties to meet its generation needs.

With regards to environmental, social and governance risks, Cikarang has manageable exposure to carbon transition risk. Around 75% of Cikarang's generation capacity comes from gas-fired power stations, which are less carbon intensive than coal-fired power stations. Moreover, management is actively pursuing opportunities to grow rooftop solar generation and the use bio-mass fuel in its coal-fired power station.

Moody's expects that changes to Indonesia's energy mix will be gradual, and that there are unlikely to be adverse policy actions to discourage coal-based additions in the medium term; a situation which further reduces Cikarang's exposure to an adverse policy change.

Moody's could upgrade Cikarang's ratings if there is (1) a further track record of the company's capital management plans and adherence to its stated dividend payment policy, and (2) further clarity over the extension of its key long-term gas supply arrangement with Pertamina (Persero) (P.T.) (Baa2 stable), and its 150MW power supply contract with Perusahaan Listrik Negara (P.T.) (PLN, Baa2 stable) expiring in December 2019.

An upgrade will also be predicated on there being no material deterioration in Cikarang's operating performance, and maintenance of its RCF/debt at the current level.

The outlook could revert to stable if Cikarang's operational or financial profile deteriorates, which could result from a material increase in debt-funded capacity expansions or a material increase in dividend payments. Specific financial metrics that Moody's would consider in changing the outlook to stable include RCF/debt falling below 13% on a sustained basis.

The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Cikarang Listrindo (P.T.) is an independent power producer that supplies electricity to over 2,400 industrial customers in five industrial estates in the Cikarang region, in the outskirts of Jakarta. The company owns and operates natural gas-fired combined cycle power stations and a coal- fired power plant, with a total combined capacity of 1,144 MW as of 31 October 2019. (ends)