(The following statement was released by the rating agency)
Sept 10 -
Summary analysis -- PT Perusahaan Gas Negara (Persero) Tbk. ------- 10-Sep-2012
CREDIT RATING: BB+/Stable/-- Country: Indonesia
Primary SIC: Gas production
Credit Rating History:
Local currency Foreign currency
13-Apr-2011 BB+/-- BB+/--
15-Mar-2010 BB/-- BB/--
21-Dec-2007 BB-/-- BB-/--
The corporate credit rating on Indonesian gas utility PT Perusahaan Gas Negara
(Persero) Tbk. (PGN) reflects the company's exposure to sovereign risks and
susceptibility to regulatory risk. PGN's strong market position in gas
transmission and distribution, and its improving financial risk profile temper
these weaknesses. The company's transmission business is also insulated from
price risk and has minimal volume risk. The rating on PGN is consistent with
the foreign currency sovereign credit rating on Indonesia (BB+/Positive/B;
Based on our criteria for rating government-related entities (GREs), we
believe PGN has an "important" role in executing the administration's
Integrated Indonesian Gas Pipeline projects, and has a "strong" link with its
57% owner, the Indonesian government. In our opinion, severe sovereign stress
could hurt PGN's credit standing. Stress scenarios include a significant
economic contraction, sharp currency depreciation, payment defaults by a large
number of customers, rising inflation, and lower gas tariffs with the
inability to pass through increases in operating costs. Our view is based on
PGN's exposure to country risks due to the company's government linkages,
sales to other state-owned enterprises, and regulatory risk.
We assess PGN's stand-alone credit profile at 'bb+'. Cash flows have improved
marginally, due to higher average selling prices in the company's distribution
business in 2011 and 2012. We expect PGN to maintain its ratio of total debt
to EBITDA between 1.1x and 1.3x.
We expect PGN's "significant" financial risk profile, as defined in our
criteria, to improve. We believe that the company will use its strong cash
flows to reduce debt further and meet its capital expenditure requirements.
The completion of the West Java pipeline should also facilitate a reduction in
its debt-to-capital ratio to 35% or less. An increase in gas prices in
Indonesia is unlikely to affect PGN's margins as the company can pass through
the higher costs to consumers.
We assess PGN's liquidity as "strong" under our criteria. The company's
sources of liquidity will exceed its uses by more than 3x over the next 12
months. We expect liquidity sources to exceed uses even if EBITDA declines by
about 30%. Our liquidity assessment is based on the following factors and
-- PGN's has cash of more than US$1.16 billion as of June 30, 2012,
excluding restricted cash of about US$2.9 million.
-- We expect PGN to generate about US$800 million in funds from
-- The company's liquidity uses include about US$224 million in
short-term liabilities (including debt maturing in 12 months), accrued
liabilities, and trade payables.
-- We also assume PGN will spend about US$204 million in capital
expenditure during the next 12 months.
-- PGN's liquidity is likely to remain strong in the next two to three
years because rising demand for gas should ensure solid cash flows.
-- Strong liquidity should result in the company internally funding most
of its planned capital expenditure. PGN is in compliance with the financial
covenants on interest cover, liquidity, and leverage in its loan documents.
-- The company has good relationships with banks and a good standing in
the credit market.
The stable outlook reflects PGN's stable business and cash flows.
We may lower the rating if: (1) we downgrade Indonesia; (2) PGN's stand-alone
credit profile weakens considerably if a significant decline in gas
exploration and production in Indonesia diminishes the reliability of gas
supplies or lowers pipeline utilization rates; or (3) significant delays or
cost overruns in PGN's capital expenditure plan materially weaken the
company's financial measures, such that the debt-to-EBITDA ratio rises above
We may raise the rating on PGN if: (1) we upgrade Indonesia; and (2) PGN's
stand-alone credit profile improves without a weakening in our assessment of
government support. We believe the completion of PGN's distribution network in
West Java should provide the company with the financial flexibility to reduce
its debt-to-capital ratio gradually to at least 35%, therefore improving its
stand-alone credit profile.