U.S. Markets closed
  • S&P 500

    4,395.64
    +41.45 (+0.95%)
     
  • Dow 30

    34,258.32
    +338.48 (+1.00%)
     
  • Nasdaq

    14,896.85
    +150.45 (+1.02%)
     
  • Russell 2000

    2,218.56
    +32.38 (+1.48%)
     
  • Gold

    1,768.40
    -9.80 (-0.55%)
     
  • Silver

    23.03
    +0.46 (+2.05%)
     
  • EUR/USD

    1.1696
    -0.0034 (-0.2924%)
     
  • 10-Yr Bond

    1.3360
    +0.0120 (+0.91%)
     
  • Vix

    20.87
    -3.49 (-14.33%)
     
  • GBP/USD

    1.3619
    -0.0045 (-0.3282%)
     
  • USD/JPY

    109.7800
    +0.5600 (+0.5127%)
     
  • BTC-USD

    42,885.00
    -727.91 (-1.67%)
     
  • CMC Crypto 200

    1,089.55
    +49.07 (+4.72%)
     
  • FTSE 100

    7,083.37
    +102.39 (+1.47%)
     
  • Nikkei 225

    29,639.40
    -200.31 (-0.67%)
     

Saka Energi Indonesia (P.T.) -- Moody's confirms Saka Energi's B2 ratings, changes outlook to negative

·16 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Rating Action: Moody's confirms Saka Energi's B2 ratings, changes outlook to negativeGlobal Credit Research - 07 Apr 2021Singapore, April 07, 2021 -- Moody's Investors Service has confirmed the corporate family rating and senior unsecured rating of Saka Energi Indonesia (P.T.) at B2.The rating outlook has been changed to negative from ratings under review.Today's rating action concludes the review for downgrade, which was initiated on 7 January 2021."The confirmation of Saka's B2 rating is based on our assessment that the imminent risk to Saka's liquidity has been partially mitigated by its plan to seek judicial review of its $127.7 million tax dispute," says Hui Ting Sim, a Moody's analyst. "At the same time, we now expect free cash flows at Saka over the next 12 months will be higher than our previous forecast because of improved oil prices, lower capital spending and certain tax refunds," add Sim."The negative outlook reflects potential deterioration of Saka's liquidity over the next six to nine months if the outcome of the judicial review of tax penalty is not in favor of the company or if Saka fails to get an extension of its $361 million shareholder loan maturing in January 2022," adds Sim.RATINGS RATIONALESaka faces a potential tax penalty liability of $127.7 million relating to its purchase of a 65% stake in Pangkah block from Hess Corporation (Ba1 stable) in 2014. While the company is currently preparing its application to seek judicial review, it will take some time for its appeal to be filed with the Supreme Court in Indonesia (Baa2 stable). Saka does not expect to receive a tax invoice over this period. An unexpected acceleration of this tax penalty liability will put downward pressure on the rating.While Saka's parent, Perusahaan Gas Negara (P.T.) (PGN, Baa2 stable), has extended the maturity of shareholder loans in the past, the partial repayment of shareholder loan in January 2021 has increased uncertainty with respect to further extensions. Further repayment of its $361 million shareholder loan due January 2022 will be credit negative.Saka's liquidity will be good with cash holdings above $150 million in 2022 if the company is not required to service the potential tax penalty or repay its shareholder loan. Saka expects to receive a refund of $39.8 million from the tax office in 2021, following a favorable verdict by the Supreme Court in December 2020 for another tax dispute involving Saka Pangkah LLC.Moody's estimates Saka will produce around 23-27 thousand barrels of oil equivalents (kboepd) over the next two years and maintain capital spending at around $80 million per year. Moody's forecasts are based on its medium-term Brent crude oil price assumption of $45-$65 per barrel.The one-notch uplift from parental support incorporated in Saka's B2 ratings takes into account (1) the cross-default clauses between PGN and Saka, and (2) the reputational and funding risks to PGN and its ultimate shareholder, Pertamina (Persero) (P.T.) (Baa2 stable), should Saka default.ESG CONSIDERATIONSSaka's ratings consider the very high environmental risk it faces through its oil and gas operations. Specifically, oil and gas exploration and production companies such as Saka are exposed to very high carbon transition risk. However, this risk is mitigated by the very high proportion of natural gas in Saka's production mix, which accounts for about 83% of total production.Saka is also exposed to social risks, especially in terms of responsible production and health and safety issues. However, this risk is mitigated by the company's long track record of operating its businesses without any major incidents.In terms of governance considerations, the rating incorporates Saka's concentrated 100% ownership by PGN and its status as a private company. Despite being unlisted, Saka publishes quarterly financial statements and maintains a reasonable degree of transparency of its operating performance.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSGiven the negative outlook, a rating upgrade is unlikely.Nonetheless, the rating outlook could be revised to stable if (1) there are positive developments and clarity on Saka's strategic role within the consolidated Pertamina/PGN group; (2) there is clear financial support from PGN including equity injections and conversion of shareholder loans to equity that significantly improves Saka's liquidity position, and (3) Saka improves its operating profile without further straining its credit metrics.Saka's ratings could be downgraded if Moody's lowers its assessment of parental support incorporated in the ratings. This could be driven by (1) a material change in Saka's ownership structure; or (2) Saka's importance to PGN deteriorates 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.In addition, Moody's would downgrade Saka's ratings if (1) it does not secure an extension of the remainder of the shareholder loan due in January 2022, (2) its financial profile is materially hurt by amendments to the terms of the shareholder loans; (3) Saka partially repays the outstanding shareholder loan, materially straining its liquidity; or (4) the outcome of judicial review of the tax penalty is not in favor of the company and it is required to pay the tax penalty.The ratings could also be downgraded if Saka's standalone credit profile deteriorates because of weak liquidity or if 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 Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808. Alternatively, please see the Rating Methodologies page on www.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 the first nine months of 2020, Saka reported net production of 25.7 kbpoed per day.Saka is wholly owned by natural gas distribution and transmission company, Perusahaan Gas Negara (P.T.) (PGN). In turn, PGN is 56.96% owned by Indonesia's 100% state-owned national oil company, Pertamina (Persero) (P.T.).REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Hui Ting Sim Analyst Corporate Finance Group Moody's Investors Service Singapore Pte. Ltd. 50 Raffles Place #23-06 Singapore Land Tower Singapore 48623 Singapore JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Vikas Halan Associate Managing Director Corporate Finance Group JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Singapore Pte. Ltd. 50 Raffles Place #23-06 Singapore Land Tower Singapore 48623 Singapore JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​