Release: Fitch affirms Indonesia's Pertamina at 'BBB-'/stable

(Fitch Ratings-Hong Kong/Jakarta/Singapore-02 May 2012) -- Fitch Ratings has affirmed PT Pertamina (Persero)'s (Pertamina) Long-Term Foreign-Currency IDR at 'BBB-' with Stable Outlook. Its senior unsecured rating and existing senior unsecured notes have also been affirmed at 'BBB-'.

In addition, Fitch has assigned Pertamina's USD1.25bn senior unsecured notes due 2022 and USD1.25bn senior unsecured notes due in 2042 final ratings of 'BBB-'. The assignment of the final rating follows a review of final documentation materially conforming to the draft documentation previously reviewed.

Pertamina's ratings are equalised with that of its parent, The Republic of Indonesia ('BBB-'/Stable), reflecting its strong legal, operating and strategic linkages to the sovereign, as per Fitch's parent and subsidiary linkage methodology.

Pertamina remains one of the most important state-linked entities in executing Indonesia's national energy policy. It is the dominant refiner and retailer of petroleum products in Indonesia. It performs a public service obligation by selling certain refined products at below market prices, for which it is paid a compensating subsidy by the government.

Fitch expects the support Pertamina receives in the form of subsidies to remain intact in the foreseeable future given its status as an important policy vehicle. Increasing prices of its subsidised products remains challenging, as was evidenced by the recent aborted attempt by the state to raise prices. As over 50% of Pertamina's sales volumes are derived from subsidised products its EBITDA would be negative if not for this compensating subsidy.

Pertamina's standalone credit profile is expected to weaken in the next four to five years as the company undertakes substantial capex to ramp up production and raise refinery operating flexibility. The investment will, however, help the company's long-term profit margins by increasing its internally sourced crude for its refineries.

Pertamina has adequate internal cash generation - including government subsidies - as well as liquidity to manage its short-term debt maturities. As at end-2011 Pertamina had IDR29trn of cash and about IDR12trn of undrawn short term facilities as opposed to short-term debt maturities of IDR32.6trn. For its investment programme execution over the next three years Fitch believes Pertamina will be able to raise funds given its proven access to banks and capital debt markets. Fitch also notes that there is some flexibility in relation to its capex programme.

Any changes in the sovereign rating would lead to a corresponding change in Pertamina's ratings, provided that the there is no weakening in its ties with the government.(ends)