The 30-year US dollar bonds that state-owned electricity company, PT PLN, plans to issue have received positive ratings from international rating agencies, signaling that the company can weather short-term shocks; yet, the company still faces headwinds that may influence its financial solidity.

Standard and Poor’s Ratings Services assigned a “BB” rating to the bonds, which the company will issue under their US$2 billion global medium-term notes program. The “BB” rating signifies that the company is less vulnerable in the short term but must brace against uncertainties that could threaten business and economic conditions.

Fitch Ratings assigned a “BBB-” rating to the bonds. The rating denotes that PLN has enough capacity to fulfill its financial commitments. However, negative economic conditions could weaken the company’s ability to meet these commitments.

In a press release, Standard & Poor’s stated that “the rating on the proposed notes and the program reflect the long-term corporate credit rating on PLN.

“The rating on PLN factors in the company’s high adjusted debt, an inefficient — albeit improving — fuel mix and an uncertain tariff environment. The company is also exposed to high foreign currency risks,” the release said.

In its consolidated financial reports as of June, PLN netted total revenues of Rp 111.37 trillion ($11.6 billion), up from Rp 98.56 trillion in the same period last year. In the first half of the year, PLN also recorded operating expenses of Rp 94.9 trillion, up from Rp 86.79 trillion during the same period in 2011. About 70 percent or Rp 65.5 trillion of the first-half expenses this year went on fuel and lubricants. Between January and June, PLN suffered pre-tax losses of about Rp 789.24 billion, down from Rp 11.27 trillion in the same period last year.

Standard & Poor’s said that the company’s “revenues are in Indonesian rupiah while operating costs, including fuel purchases, are denominated predominantly in US dollars”.

The ratings agency added that there was an “extremely high likelihood” that the Indonesian government would “provide timely and sufficiently extraordinary support to PLN in the event of financial distress”, which consequently supported the rating.

The agency also said that it assessed PLN’s stand-alone credit profile as “B+” based on the company’s “aggressive” financial risk profile and “fair” business risk profile.

“The company’s dominant integrated position in the Indonesian power sector and the favorable demand outlook for electricity in the country are additional credit strengths,” the agency wrote.

The agency further added that they expected PLN’s “risk profile to remain aggressive over the next two to three years due to the company’s significant and largely debt-funded capacity expansion under two fast-track programs”.

However, the agency may downgrade PLN’s rating if Indonesia’s sovereign credit rating were lowered “by a notch” or if PLN’s stand-alone credit profile were to tumble “by more than two notches”.

“We believe that the likelihood of an upgrade is limited over the next 12 months,” the agency added.

Fitch said maintenance of PLN’s legal, operational and strategic ties with the government could lead to positive action

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