PEFINDO lowers rating of PT Pelabuhan Indonesia I (Persero) to “idAA-”

(December 26, 2019)--PEFINDO has lowered the ratings of PT Pelabuhan Indonesia I (Persero) (PIGN) and its Bond I Year 2016 to “idAA-” from “idAA”. The downgrade reflects our expectation that PIGN’s financial leverage will remain aggressive and its cash flow protection measures will remain weak in the medium term. The Company incurred higher than expected financial leverage and it still has significant capital expenditures plan that will be heavily financed by debt. At the same time, PIGN’s revenue and profitability growths are lower-thanexpected due to unfavorable global economic conditions such as the ongoing trade war between the United States of America and China and the boycott of crude palm oil from Europe, resulting in weaker cash flow protection measures. The outlook for the corporate rating is “stable”.

An obligor rated idAA differs from the highest rated obligors only to a small degree, and has a very strong capacity to meet its long-term financial commitments relative to that of other Indonesian obligors.

The minus (-) sign in a particular rating indicates that it is relatively weak within its rating category.

The corporate rating reflects the potential strong government support for PIGN due to the strategic importance of seaports, its strong market position in the Sumatra region, and higher profitability margins compared to its peers. The corporate rating, however, is constrained by its financial leverage level and cash flow protection measures, which are expected to weaken, and the nature of the seaport industry, which is highly dependent on economic and regulatory conditions.

The rating could be raised if PIGN improves its business position within its service areas and realizes the expected returns from new investments, particularly from the expansion of Kuala Tanjung port and the Belawan container terminal, and improves its credit profile.

The rating could be lowered if we view a reduction in government support, such as through a material divestment of ownership. The rating could also be under pressure if it incurs substantially larger debt than projected and/or its new investments are not well executed, and if there are material decreases in the volume of container and cargo movement that result in a weaker financial profile, particularly if its debt to EBITDA ratio exceeds 6.5x on a sustained basis.

PIGN is a government-owned port operator that provides seaport service facilities through 17 ports in four provinces in Aceh, North Sumatra, Riau, and Riau Islands, as of November 30, 2019. Its flagship terminals are the Belawan International Container Terminal (BICT) and the Belawan port (TPKDB) in North Sumatra near the city of Medan. The port is the country’s busiest outside Java. (ends)