PEFINDO affirms “idA” ratings for PT Medco Power Indonesia and its bonds

(March 18, 2019)--PEFINDO has affirmed its “idA” ratings for PT Medco Power Indonesia (MEDP) and its Bond I Year 2018. PEFINDO has also affirmed its “idA(sy)” ratingfor MEDP’s Sukuk Wakalah I Year 2018. The outlook for the corporate rating is “stable”.

An obligor rated idA has a strong capacity to meet its long-term financial commitments relative to that of other Indonesian obligors. However, the obligor is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher-rated obligors.

The suffix (sy) means the rating mandates compliance with Islamic principles.

The corporate rating reflects our view on MEDP’s position as a strategically important subsidiary of its controlling parent, PT Medco Energi Internasional Tbk (MEDC, idA+/Stable), favorable off-taker agreements, and stable profitability margin. However, the rating is constrained by risks related to power projects, its aggressive capital structure, and its weak cash flow protection measures.

Any possibility of a rating upgrade in the next 12-18 months is less likely, as we expect its sizeable capital expenditure to continue exerting pressure on its capital structure. We may consider a rating upgrade if MEDP significantly improves its capital structure and cash flow protection measures, which could be achieved through improvement in its operational efficiency, additional sources of revenues, and/or a deleveraging effort. We may lower the rating if its revenue and/or EBITDA are significantly less than projected, and/or if its debt significantly exceeds projections. The rating will also be under pressure if we view that MEDP is no longer considered as a strategically important subsidiary to MEDC.

Established in 2004, MEDP is an independent power producer (IPP) focused on clean energy power plants, mainly gas and geothermal. Its main business is to produce and supply power to state-owned electricity company, PT Perusahaan Listrik Negara (Persero) (PPLN, idAAA/Stable), especially in the western part of Indonesia. As of December 31, 2018,its power plants had a total installed capacity of 645 megawatts (MW), where most of them are gas and geothermal fired. It also provides operation and maintenance (O&M) services, with a total capacity of 2,150 MW, mainly through TJB Power Services (TJBPS). As of December 31, 2018, its shareholders were PT Medco Power Internasional (51%) and MEDC (49%).