S&P: PT Perusahaan Listrik Negara Proposed Samurai Bond Assigned 'BBB' Rating

(SINGAPORE (S&P Global Ratings) Sept. 6, 2019)--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; BBB/Stable/--). The rating on the proposed Japanese-yen denominated (Samurai) bonds reflects the long-term issuer credit rating on PLN.

PLN intends to use the proceeds for its planned capital expenditure (capex) and general corporate purposes. The drawdown is in line with our expectation of additional debt to fund PLN's high capex plans.

The rating on PLN reflects our view that the Indonesian government (BBB/Stable/A-2) would provide timely support to the state-owned utility in all circumstances. We believe PLN plays a critical role in Indonesia's electricity sector, including providing subsidized electricity and driving the nation's 100% electrification target. In our view, the government maintains significant influence over PLN through various ministries--giving it multiple avenues to identify risks and provide timely support.

We continue to expect timely subsidy payments to PLN from the government. This supports the company's stand-alone credit profile (SACP). PLN is also dependent on compensation from the government for a shortfall in tariffs following the tariff caps in Indonesia. This creates a timing mismatch in cash flows, unlike the monthly subsidy payments that the government has been paying PLN on a timely basis. About Indonesian rupiah (IDR) 23 trillion for fiscal 2018 is still in arrears and we expect PLN to receive this amount in fiscal 2020. Our base case assumes another IDR20 trillion of government compensation for fiscal 2019--which we expect PLN to receive in 2021, given that we believe the potential tariff revision may happen in 2020. We assume government subsidies and compensation received in cash of IDR60 trillion–IDR70 trillion annually over the next two years.

We believe the delays in payment in compensation expose PLN to liquidity pressures, which will be partially offset by the company having access to working capital facilities of about IDR28 trillion--the cost of which is recoverable under the subsidy mechanism.

A weak regulatory environment, high leverage, and continuing high capex weigh on PLN's SACP. The company's elevated annual capex of IDR90 trillion over the next two years is likely to result in negative free operating cash flows. We expect PLN's leverage to remain high, with a ratio of funds from operations to debt of 7%-8%.

The stable outlook on PLN for the next 12-24 months reflects the sovereign rating on Indonesia as well as our expectation that the company will continue to benefit from ongoing and extraordinary government support. (ends)