PEFINDO: PT Medco Power Indonesia rated “idA” with stable outlook

(March 11, 2022)--PEFINDO has affirmed the ratings for PT Medco Power Indonesia (MEDP) and its Bond I Year 2018 at “idA”, and the ratings for MEDP’s Sukuk Wakalah I Year 2018 and Sukuk Wakalah II Year 2019 at “idA(sy)”. MEDP’s Sukuk Wakalah II Year 2019 Serie A of IDR832.7 billion will mature on May 23, 2022 and MEDP will fully repay its maturing Sukuk using combination of internal cash and bank loans. 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 those 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.

A syariah based financing instrument rated idA(sy) indicates that the issuer’s capacity to meet its long-term financial commitments under the syariah financing contract, relative to other Indonesian issuers, is strong. However, it is somewhat more susceptible to adverse effects of changes in circumstances and economic conditions than higher-rated instruments.

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+/Positive), stable revenue stream and profit margins, and high demand for electricity. However, the rating is constrained by risks related to power projects, its aggressive capital structure, and its weak cash flow protection measures.

We may consider a rating upgrade if MEDP significantly improves its capital structure and cash flow protection measures, which could be achieved through improvements in its operational efficiency, additional sources of revenues, and/or a significant deleveraging effort.

On the other hand, the rating may be lowered if MEDP incurs additional debt beyond projections and/or continue to divest its shares on strategic assets that will reduce its influence to generate cash flow resulting in a weaker business and financial profile. The rating will also be under pressure if we view that MEDP is no longer considered as a strategically important subsidiary to MEDC as reflected by the material divestment.

Established in 2004, MEDP is an independent power producer (IPP) focusing 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 February 10, 2022, the Company improved its operating scale following the commercial operation of Riau Combined Cycle Gas Turbine of 275 MW which significantly increased MEDP’s total installed capacity to 913 MW, most of which are powered by gas and geothermal energy. It also provides operation and maintenance (O&M) services, with a total capacity of 1,650 MW, mainly through TJB Power Services. As of December 31, 2021, its shareholders were PT Medco Power Internasional (51%) and MEDC (49%). (ends)