S&P: Perusahaan Listrik Negara's Proposed Drawdown Rated 'BBB'
Monday, June 22 2020 - 09:59 PM WIB
(SINGAPORE (S&P Global Ratings) June 22, 2020)--S&P Global Ratings today assigned its 'BBB' issue rating to a proposed issuance of senior unsecured notes by Perusahaan Perseroan (Persero) PT Perusahaan Listrik Negara (PLN). The company will issue the notes under its US$15 billion global medium-term notes (MTN) program, to which we have also assigned a 'BBB' rating.
The rating on the proposed notes and the program reflects the long-term issuer credit rating on PLN (BBB/Negative/--).
The company intends to primarily use the proceeds for its planned capital expenditure (capex) and for general corporate purposes. The drawdown is in line with our expectation of PLN's additional debt to fund its planned capex.
The rating on PLN reflects our view that the Indonesian government would provide timely support to the state-owned utility company under all circumstances. We believe PLN plays a critical role in Indonesia's electricity sector, providing subsidized electricity and driving the nation's 100% electrification target. In our view, the government maintains significant influence over the company through various ministries--giving it multiple avenues to identify risks and provide timely support.
PLN has been receiving timely subsidy payments from the government for tariff shortfalls as of May 2020. This supports the company's stand-alone credit profile (SACP) of 'b+'. PLN is also dependent on compensation from the government for a shortfall in revenue due to tariff caps instituted by the government to benefit lower-income citizens. The company has about Indonesian rupiah (IDR) 45 trillion in total of arrears for 2018 and 2019, and we expect it to receive this amount in 2020 as per the government's announcement. We also expect PLN to receive an additional IDR3.5 trillion subsidy payment due to free and discounted tariffs until June 2020, as announced by the government following the COVID-19 pandemic.
A weak regulatory environment, high leverage, and continuing elevated capex weigh on the company's SACP. We expect PLN's leverage to remain high over the next two to three years, with a ratio of funds from operations to debt of 7%-8%.
The negative outlook on the company reflects the outlook on the sovereign credit rating on Indonesia (BBB/Negative/A-2) for the next 24 months. (ends)