(The following statement was released by the rating agency)
Feb 25 - Fitch Ratings has said that PT Indika Energy Tbk’s (Indika; B+/Positive) ratings are not immediately affected by its proposal to acquire a 10% stake in an oil field operated by Total SA (AA/Stable). This is because the upfront investment and initial exploratory costs over the next two years are not material in relation to the cash generation of Indika.
As a result there is no immediate impact on Indika’s financial profile or on Fitch’s expectation of Indika’s deleveraging over the next 12 to18 months, which underpin the Positive Outlook on its rating.
Initial exploratory work on the field is expected to commence in Q213. Material investments are unlikely to be required before completion of an assessment of the field’s commercial viability, which is expected to be completed in 2014. Any additional investments that follow will require Indika to contribute as per its interest in the concession. Although the company has no prior direct experience in oil & gas exploration, production and development,Total SA’s involvement as the main shareholder as well as operator of the asset materially reduces execution risks.
Indika’s rating reflects strong dividend inflows from its 46%-held PT Kideco Jaya Agung (Kideco), the third-largest coal producer in Indonesia and increasing earnings contribution from Indika’s other coal-related operations such as contract mining and logistics as well as from its engineering, procurement and construction business. The rating may be upgraded if its financial leverage, as measured by adjusted debt net of cash/operating EBITDAR, falls below 1.5x on a sustained basis.