Bangkok--15 Jan--Moody's Investors
Moody's Investors Service sees no impact on the provisional (P)Ba2 bond rating to be issued by Listrindo Capital B.V., following the company's decision to change the structure from secured to unsecured based on advice the company received from its tax advisors. The outlook remains stable.
Moody's expects to remove the (P)Ba2 rating for the senior unsecured notes from its provisional status upon completion of the issuance.
"The notes were originally secured by a first priority lien on the intercompany loan from Signal Capital to Cikarang Listrindo (Cikarang),"
says Jennifer Wong, Moody's lead analyst for the company, adding "Despite the change in structure, the notes will continue to be unconditionally and irrevocably guaranteed by Cikarang."
"The guarantor structure remains the same and Cikarang will continue to be the ultimate payment source of the principal and interest for the notes on an unsubordinated basis."
Cikarang's rating continue to reflect its exclusive IPP license for providing electricity to a large and diversified base of industrial estate customers, its offtake agreement with PLN (Ba2/stable), as well as track records of solid demand growth and payment records from the industrial estate customer base, even during the Asian financial crisis in 1997 and the more recent economic slowdown.
The rating also reflect the company's strong reliability, strong operating performance, and its robust tariff structure -- which allows for foreign exchange and natural gas cost pass-through -- and its strong management team.
At the same time, the rating is constrained by its offtake risk exposure to PLN and a moderate degree of uncertainty regarding the extent of demand for the additional capacity that will come from its expansion program.
Furthermore, there is certain degree of execution risk associated with the capacity expansion, even though Cikarang has a track record in managing such expansion and the fact that the program is generally on schedule and within budget. In addition, a lack of operational flexibility, given the company's single location plant and relatively small capacity, is apparent.
Moody's also notes that -- post the note issue -- all of Cikarang's debt will be in one bullet maturity, creating refinancing risk that is unusual and which would represent a weakness for the company.
Further, the future financial profile of the company is subject to a degree of uncertainty, given the move from secured bank lending and restrictive covenants to the more relaxed high-yield bond covenants.
Moody's notes that the expansion plan will be completed in 2010, and while such covenants do provide some restrictions, they do not completely prevent further debt being raised, if Cikarang so wishes.
Cikarang's average projected Cash Available for Debt Service (CAFDS)/Mandatory Debt Service of around 3.0x and FFO/Debt of around 20% are appropriate for the Ba2 rating, and in line with Moody's Power Generation Projects methodology.
Moody's believes that Cikarang has a relatively predictable business, and which has some similarities -- on a small scale -- to that of a utility, given the captive industrial user base.
The stable outlook reflects Moody's expectation that Cikarang will continue to benefit from the strong demand from the industrial estates.
Upward rating pressure will be limited in the near to medium term, given the uncertainty over the offtake arrangement with PLN and the execution risks associated with the capacity expansion.
But the rating will likely be upgraded in the longer term if Cikarang concludes new offtake arrangements with PLN, and which extend the term of the contract for existing capacity, as well as taking part of the capacity currently being built. In addition, it will be important that Cikarang maintains its current strong operational and financial profile.
Key metrics that Moody's would look for in the case of a rating upgrade
include: RCF/Debt in the 15-20% range and Debt/EBITDA in the 3-4 times range on a consistent basis. Furthermore, an upgrade in PLN's rating could also positively impact Cikarang's rating, assuming new offtake arrangements are finalized.
On the other hand, negative rating pressure will emerge if Cikarang (1) is unable to finalize the offtake arrangements with PLN at a favorable tariff; (2) cannot execute its capacity expansion on schedule and within budget; or (3) there is a significant deterioration in Cikarang's operational and financial profile.
In this context, financial metrics that would indicate downward rating pressure include RCF/Debt falling below 10-15% and/or Debt/EBITDA falling below 4.5 times. A downgrade in PLN's rating could also pressure the rating.
The principal methodology used in rating Cikarang was Moody's Rating Methodology for Power Generation Projects, December 2008, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
The last rating action on Cikarang was 13 January 2010 when Moody's assigned the Ba2 corporate family rating and the (P)Ba2 senior secured bond rating.
PT Cikarang Listrindo (Cikarang) is the exclusive IPP supplier of electricity to a wide range of mostly foreign-owned companies in five industrial estates in the Cikarang area outside of Jakarta. It owns and operates a 518MW natural gas-fired combined cycle power station, and distributes directly to the companies located on the industrial estates.
Its current capacity expansion plan, upon completion, will increase the company's installed generation capacity to 646MW. It also has an offtake agreement for part of its power with PT Perusahaan Listrik Negara (PLN, Ba2/stable). Cikarang is owned by 3 Indonesian families.
Hong Kong
Jennifer W. Wong
Asst Vice President - Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Singapore
Tony Tsai
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308