S&P: PLN global medium-term notes assigned 'BB' rating with stable outlook

(Singapore, Oct. 16, 2012) -- Standard & Poor's Ratings Services today assigned its 'BB' issue rating to a proposed issue of senior unsecured notes by PT Perusahaan Listrik Negara (Persero) (PLN; BB/Stable/--). The company will issue the notes under its US$2 billion global medium-term notes program, which we also rate 'BB'. The ratings on the proposed notes and the program reflect the long-term corporate credit rating on PLN.

The rating on PLN factors in the company's high adjusted debt, an inefficient--albeit improving--fuel mix, and an uncertain tariff environment. The company is also exposed to high foreign currency risks. Its revenues are in Indonesian rupiah while operating costs, including fuel purchases, are denominated predominantly in U.S. dollars.

Our assessment that there is an "extremely high likelihood" that the government of Indonesia (BB+/Positive/B; axBBB+/axA-2) will provide timely and sufficient extraordinary support to PLN in the event of financial distress supports the rating. We assess PLN's stand-alone credit profile as 'b+', based on its "aggressive" financial risk profile and "fair" business risk profile, as our criteria define these terms. The company's dominant integrated position in the Indonesian power sector and the favorable demand outlook for electricity in the country are additional credit strengths.

We expect PLN's financial risk profile to remain aggressive over the next two to three years due to the company's significant and largely debt-funded capacity expansion under two fast-track programs. Higher debt will mitigate the likelihood that PLN's ability to generate cash flow will improve because of increasing generation capacity over time. We project PLN's ratio of debt to EBITDA to be at or less than 6.5x in 2012, lower than the average of 7.1x in 2007-2011.

The stable outlook on the PLN rating reflects our expectation that the likelihood of government support for the company will remain "extremely high" over the next couple of years. We may lower the rating if, among other things, we perceive a lower likelihood of government support or a weakening in existing support measures. We may also lower the rating if we lower the sovereign credit ratings on Indonesia by a notch or PLN's stand-alone credit profile deteriorates by more than two notches. We believe the likelihood of an upgrade is limited over the next 12 months. (ends)