RPT-Fitch affirms Pertamina at 'BBB-' / Outlook Stable

Mon Jun 16, 2014 4:15am EDT

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June 16 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed the rating Term Foreign Currency Issuer Default Rating (IDR) of PT Pertamina (Persero) (Pertamina) at 'BBB-with Stable Outlook. Senor no unsecured rating, a global program of medium-term notes amounting to USD 10milyar and letters senior unsecured debt is also affirmed at 'BBB-'

Pertamina ranks synchronized with the rank of the holder shares, the Republic of Indonesia (BBB-/Stabil), reflecting the operational relationship and strong strategic methodology in accordance with the Parent and Subsidiary Linkage from Fitch. The affirmation reflects Fitch's view that support strong of government will continue in the future because of the position of Pertamina as one of the state-owned enterprises (SOEs) are the most important in Indonesia and as executor of the national energy policy. Pertamina is the only state-owned oil refining and the dominant retailer of oil products. Stand-alone credit profile is currently located on the same levels similar to those equivalent rank in state rankings BBB-.

Factors Fueling Rating

Public Service Obligations: Pertamina to run a public service obligation (PSO) with selling petroleum products at prices set by the government that was below the market price. Pertamina Selanujtnya compensated through government subsidies, which ensures that the company has to get the margin determined for the products that are sold through the mechanism of PSO. More than 50% Pertamina sales volume of products derived from these subsidies and EBITDA companies will be negative in the absence of subsidies. Large subsidies amounted to USD 20milyar in 2013, compared to EBITDA (including margin PSO) amounted to USD 6.1milyar.

However, Indonesia showed a desire to reduce barriers financial state due to energy subsidies. Dai retail prices of products certain oil increased in June 2013 in an effort to reduce costs subsidies. However, the fuel subsidy is not dropped substantially in 2013 and Fitch does not see any material reduction in 2014 due to weakening rupiah against the U.S. dollar. Fitch believes the role of Pertamina as a seller Dengah petroleum products below market prices will continue. this is due to by the magnitude of the increase in retail prices is needed to achieve a market price, an arduous task politically in the short term.

Credit metrics deteriorated: Fitch looked Pertamina credit metrics will continue weakened as the company intends to increase capital spending and investment materially in the medium term, which will lead to a negative cash flow after sustained investment. Funds from operations (FFO)-adjusted net leverage increased to 3.1 x in FY13 (1.2x in FY12) and funds from operations (FFO) interest coverage fell to 7x (14x in 2012). Fitch believes financial leverage will weaken to about 3.5x to 4x in the medium term. However, Fitch believes that a strong relationship with the government will help maintain adequate liquidity through good access the bank loans and debt securities market.

Increased Capital Expenditure and Investment: capital expenditure and investment budget in FY14 to FY16 above USD 25milyar, including the allocation of USD 11milyar to acquisition of upstream assets. Fitch expects the external services used Pertamina to more than 75% the purposes of refining crude oil and 50% refined products it sells. Increased upstream production and capacity Pertamina refineries is important to improve the level of profit companies and also to reduce the cost of government subsidies. In FY13, Pertamina issued USD 4.7 billion for capital expenditures and $ 2.1 billion for upstream acquisition. Pertamina upstream oil production rose to about 250 thousand barrels of oil per day (MBOPD) in April 2014 compared to approximately 202mbopd in 2013, the result of capital expenditures and the acquisition of upstream oil and gas assets.

Standalone: standalone credit Pertamina Strength reflects the operation vertically integrated, scale, and dominant position in the retail fuel market in Indonesia. However, the strength weaken due to lower operating position production capacity upstream and mid-stream relative to the product penjulan overall oil. Fitch expects the upstream oil production accounts for about 25% of crude oil refining intake Pertamina, and the results refining accounts for about half of the total sales volume. Pertamina also one of the largest producers of crude oil in Indonesia accounted for 24% of the country's production. Financial metrics under pressure from magnitude of investment purposes. Overall, Fitch's credit profile stand-alone was weak in the BBB category.

Sensitivity Level:

Positive: future developments that individually and collectively to trigger level rise include:

-Increased levels without weakening sovereign Indonesia industrial relations with the ruling of the lateral legal, operational and strategic.

Negative: future developments that may, individually and collectively, triggering the decline include:

-Negative action on the sovereign Indonesia fractionation, followed by weakening stand-alone profile also weakened. Fitch will lower profile any stand-alone enterprise capex and M & A leverage resulting attenuation to about 4.0 x.

-Weakening ties with the government even in the view of Fitch, this will not happen in the middle period.

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