Standard & Poor's Ratings Services today assigned its BB- issue rating to the proposed issue of senior unsecured notes by Listrindo Capital B.V.
The notes are fully guaranteed by PT Cikarang Listrindo (BB-/stable/--). The rating is subject to our review of the final issuance documents. "We expect Cikarang to use part of the notes proceeds to refinance some of its debt. The remaining amount will be to fund a portion of a new coal-fired power plant and general corporate purposes."
A source told Insider Stories that the proposed unsecured notes will be arranged by Barclays Capital and Credit Suisse.
The current rating on Cikarang factors in higher debt to fund its proposed plant and reflects our view of the company's aggressive capital expenditure plans, weak capital structure, its exposure to single-site concentration and counterparty risks.
The company's diverse customer base, stable operations, and regulatory protection offset these weaknesses.
The stable outlook on the corporate credit rating reflects our assumption of steady revenue growth from industrial customers.
"We also expect cash flows from Cikarang's operational gas-fired power plants to remain stable and provide cushion against capital expenditures on its proposed coal-fired power plant."
Cikarang's recently expanded generation capacity has started to contribute steady cash flows. "However, we view the company's capital investment as a limiting factor for any rating upside in the short to medium term."
The rating may come under pressure if cost overruns and construction delays in the coal-fired plant constrain the company's ability to reduce its adjusted debt to capital to below 60% on a sustainable basis.
New investments, aside from the ongoing plans, are likely to weaken the company's credit profile and result in further downward pressure on the rating.
Significant deviations from existing operating performance and aggressive shareholders' returns, such as high dividend payouts, could also negatively affect the rating.
Upside potential for the rating will be limited until project-related risks decline and the company's financial risk profile improves, including a strong liquidity position and a debt-to-EBITDA ratio below 2.5x on a sustainable basis.
Disclosure: No position at the stock mentioned above.
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