Release: Fitch assigns 'B+' ratings to Indonesia's Star Energy Geothermal (Wayang Windu)
Tuesday, January 26 2010 - 03:51 AM WIB
"SEG's ratings reflect its strong track record of reliable operating performance, its base-load generation status and the long-term 'take or pay' energy sales contract which underpins the company's stable and recurring revenue and cash flow," says Simon Wong, Director in Fitch's Asia-Pacific energy and utilities team.
SEG's reliable operating performance stems from Wayang Windu's abundant geothermal resources, stable steam pressure, the use of proven technology and reliable steam turbines and generators. Geothermal turbine-generator Unit 1, with a gross installed capacity of 110MW, has had an average net capacity factor of 99% over the past five years which compares favourably to domestic peers and international peers. Unit 2, with gross installed capacity of 117MW, has been generating electricity above its nameplate capacity since commercial operations started in March 2009.
Fitch notes however that the ratings are constrained by SEG's single site operation, inherent risks in conducting geothermal operations in a seismic active area, as well as concentration risk of a sole electricity off-taker, PT Perusahaan Listrik Negara (PLN). "Also, the large capex program to develop Unit 3, with a gross installed capacity of up to 127MW by mid-2013, is expected to significantly increase SEG's negative free cash flow during 2010-2013 and delay the company's ability to de-leverage," notes Mr. Wong.
The agency notes that the execution risk for capacity expansions and the risk of cost overruns are partially mitigated by SEG's successful track record in developing Unit 2, which was completed on time and within budget. Also, SEG has significantly reduced the number of new production wells needed to support Unit 2. A technical review report dated 3 November 2009 highlighted that the steam supply from existing wells has declined significantly since Unit 2 commenced operation. However, SEG will undertake well maintenance early in 2010 and expects to drill additional wells to ensure stable steam production. Fitch notes that SEG has identified clear development hurdles for Unit 3, including independent certification of additional geothermal resources and receipt of additional financing.
The Stable Outlook is based on SEG's expected stable cash flow generation profile, abundant geothermal resources and long-term 'take or pay' energy sales contracts.
At end-September 2009, SEG had total debt of USD406.2m, which comprised senior secured term loans of USD281.9m, an interest rate swap liability of USD23.3m carried at fair-value, and subordinated shareholder loans of USD101m. A successful refinancing of the secured term loans with the proposed notes is expected to reduce SEG's liquidity risk, due to a demanding principal repayment schedule on the secured term loans. Refinancing risk for the proposed notes is moderate and reflected in the 'B+' ratings. However, Fitch expects that when Unit 3 starts commercial operation, SEG will generate positive free cash flow, subject to the company's further investment plans.
SEG is one of the largest geothermal electricity producers in Indonesia, with total installed capacity of 227MW. It has exclusive rights to exploit and utilise geothermal resources at the Wayang Windu contract area located in the highlands of West Java. (end of release)