TEXT-Fitch affirming PLN rating at 'BBB-' / stable
(The following statement was released by the rating agency)
Dec 13 - Fitch Ratings has affirmed the Long-term Issuer Default Rating (IDR) PT Perusahaan Listrik Negara (PLN) at 'BBB-' with a stable outlook. Fitch also affirmed the senior unsecured global program PLN and medium-term notes (GMTN) PLN some $ 2 billion, and the bonds issued under this program at 'BBB-'.
PLN ranks comparable to the Indonesian soveign ratings ('BBB-' / stable) as a shareholder, which reflects the legal ties, strong operational and strategic based methodology "Parent and Subsidiary Linkage" owned by Fitch.
This assertion also reflects Fitch's view that the government will continue to provide strong financial support in the future given the position of PLN as one state-owned enterprises and important public service obligations entrusted to PLN. PLN is the owner and operator of the electricity transmission and distribution networks in Indonesia and currently manages more than 80% of electricity generation capacity. PLN also is the main entity used by the government to implement the national electricity infrastructure development program.
Electricity rates set by the government for public services and on average lower than the cost of production. Therefore, the government continues to support PLN through the implementation of subsidy mechanism in which PLN will recover operating costs and financing and also get revenue "fee" in accordance with the agreements made each year that can be used in part to cover the cost of the investment company.
Fitch found that the service function of PLN will continue to cling to remember a large investment program until 2020, and the difficulties in raising electricity rates in Indonesia. Proposals rate increases in 2011 and 2012 could not be implemented due to the large resistance and revision rates in the future may not be large enough to warrant the level of profits for PLN when subsidies eliminated. The government is also not likely to significantly increase electricity tariffs before the presidential election in 2014. However, Fitch found that government subsidies will gradually decrease due to the increased capacity of coal-based power plants are cheaper, gas and other renewable fuels, under the scheme of "fast track" in 2020, resulting in lower average costs of production electricity.
In addition to direct subsidies, PLN also receive real support from government in the form of direct loans, two-step loans from multinational agencies, capital injections and guarantees of bank loans for expansion programs PLN.
Including government subsidies, PLN generate sufficient internal cash and have liquidity to manage debt maturities, which is now no more than USD 25 trillion per year. In late September 2012, PLN has USD 15 trillion of cash and cash equivalents and approximately IDR50 trillion unused bank facilities as compared to short-term debt amounted to IDR22trilyun. PLN, however, require external funding to manage a large annual capital expenditures. Fitch found the company will be able to obtain financing to consider its position as a strong body which has close ties to the government.
What could change the rating?
Positive: future developments that individually and collectively can trigger level rise include:
-Improved Indonesia sovereign ratings if not weaken ties with the government of the legal, operational and strategic.
Negative: future developments that could, individually or collectively, triggering the decline include:
-Weakening ties with the government or government reduced dependence on PLN. According to Fitch's view, this is not going to happen in the medium term.