Moody's affirms Saka Energi Indonesia's B2 ratings; outlook stable
Moody's Investors Service has affirmed Saka Energi Indonesia (P.T.)'s B2 corporate family rating and senior unsecured bond rating.
The outlook on all ratings remain stable.
"The affirmation of Saka Energi's B2 ratings reflect our expectation that its shareholder group will step in to provide support if the operating environment deteriorates such that the company does not generate sufficient cash flows to repay its $376 million US dollar bond due in May 2024," says Rachel Chua, a Moody's Vice President and Senior Analyst.
"At the same time, Saka Energi's fundamental credit profile remains driven by its long-term fixed-price gas sales contracts with quality counterparties, which provide some revenue stability and support its strong credit metrics," adds Chua, who is also Moody's Lead Analyst for Saka Energi.
The rating remains constrained by the company's small scale, declining production profile and its exposure to high geographic concentration risk.
RATINGS RATIONALE
In January 2023, Saka Energi repaid $77.6 million of its shareholder loan to its 100% owner Perusahaan Gas Negara (P.T.) (PGN, Baa2 stable). The repayment came on the back of a strong year for the company, which generated annual EBITDA of $529 million compared with $271 million a year ago. The repayment was in line with the repayment schedule.
Beyond the January 2023 shareholder loan repayment, Moody's does not expect Saka Energi to make further repayments to PGN ahead of May 2024. The next shareholder loan repayment of $141.5 million is in December 2024.
Moody's views the shareholder loan repayment as credit negative given that it lowers the available cash balance at Saka Energi to prepare for the repayment of its US dollar bond due May 2024. However, Moody's also notes that the repayment amount was not large and can be accommodated given the company's strong cash flow generation. Post-repayment, the company is projected to have a healthy cash balance of $352 million as of 31 March 2023.
Moody's expects Saka Energi's credit metrics to remain strong over the next two years. Its adjusted retained cash flow/debt will likely stay well above 30% during this period while adjusted debt/EBITDA will remain under2.5x.
These projections assume average daily production of 25-27 thousand barrels of oil equivalent per day (kboepd) annually and are anchored to Moody's medium-term oil price assumptions of $55-$75 per barrel. If prevailing oil prices were to rise to significantly higher than Moody's price assumptions on a sustained basis, the company could generate higher earnings than the agency's current expectations and deliver even stronger credit metrics.
The one-notch uplift from parental support incorporated in Saka's B2 ratings takes into account the cross-default clauses between Saka and its parent PGN, and the reputational and funding risks to PGN and its ultimate shareholder, Pertamina (Persero) (P.T.) (Pertamina, Baa2 stable), the 100% state-owned national oil company in Indonesia (Baa2 stable), should Saka default.
Saka has adequate liquidity over the next 18 months. Moody's projects that Saka held cash and cash equivalents of around $352 million at 31 March 2023. Excluding expansionary capital spending and the further repayment of shareholder loan, Moody's expect its cash balance and projected cash flow from operations to be sufficient to support its debt repayment and capital spending over the next 18 months. Saka's next debt maturity comprises the remaining $376 million of its USD dollar bond due in May 2024. Beyond that, the remaining shareholder loan of $283.1 million will come due in two equal tranches in December 2024 and 2025.
The stable rating outlook reflects Moody's view that Saka's operational performance will remain healthy over the next 12-18 months and that it will maintain its cash balance to address debt maturities.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Saka's ratings is unlikely unless the company can fully address the maturity of its remaining $376 million bond due in 2024 and there is clarity on Saka's strategic role within the consolidated Pertamina/PGN group, with clear financial support from its shareholders.
Moody's could downgrade Saka's ratings if the agency lowers its assessment of parental support incorporated into the ratings. This could be driven by a significant change in Saka's ownership structure; a deterioration in Saka's importance to PGN, such that it does not qualify as a material subsidiary under the terms and conditions of the unsecured notes due in 2024 issued by PGN; or an early repayment of the shareholder loan by Saka, which results in a significant strain on its liquidity.
The ratings could also be downgraded if Saka's standalone credit profile deteriorates because of weak liquidity, or the company's reserves and production continue to decline.
Credit metrics indicative of a downgrade include adjusted retained cash flow/debt falling below 10% or adjusted EBITDA/interest falling below 2.5x.
The principal methodology used in these ratings was Independent Exploration and Production published in December 2022 and available at https://ratings.moodys.com/rmc-documents/396736. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Saka Energi Indonesia (P.T.) is an independent oil and gas exploration and production company in Indonesia. The company holds working interests in 11 oil and gas blocks, six of which are producing. In 2022, Saka reported net production of 33 kbpoed per day.
Saka is wholly owned by natural gas distribution and transmission company, Perusahaan Gas Negara (P.T.) (PGN). PGN is 56.96% owned by Indonesia's 100% state-owned national oil company, Pertamina (Persero) (P.T.).
REGULATORY DISCLOSURES
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Rachel ChuaVice President - Senior AnalystCorporate Finance GroupMoody's Investors Service Singapore Pte. Ltd.71 Robinson Road #05-01/02Singapore, 068895SingaporeJOURNALISTS: 852 3758 1350Client Service: 852 3551 3077
Vikash HalanAssociate Managing DirectorCorporate Finance GroupJOURNALISTS: 852 3758 1350Client Service: 852 3551 3077
Releasing Office:Moody's Investors Service Singapore Pte. Ltd.71 Robinson Road #05-01/02Singapore, 068895SingaporeJOURNALISTS: 852 3758 1350Client Service: 852 3551 3077
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