Moody’s affirms ratings of Indonesia’s top port operators

0
426

Port_of_BakauheniCredit rating agency Moody’s Investors Service has affirmed its issuer ratings for Indonesia’s two biggest port operators—Pelabuhan Indonesia II (Pelindo II) and Pelabuhan Indonesia III (Pelindo III)—at both baa3, with a stable outlook.

A baa3 rating is Moody’s lowest rating of investment grade and indicates moderate credit risk.

Moody’s also lowered Pelindo III’s baseline credit assessment (BCA) to ba1 from baa3, reflecting the company’s standalone credit quality.

The agency said Pelindo II’s baa3 ratings reflect its BCA, and do not factor in any uplift based on likely support from the government of Indonesia in times of need.

Nevertheless, Moody’s believes that the Indonesian government will strongly support Pelindo II if necessary, not only because the government has full ownership of the company, but also because Pelindo II plays a pivotal role in Indonesia’s maritime transportation sector.

Pelindo II—also known as the Indonesian Port Corporation (IPC)—is Indonesia’s largest port operator, with 12 ports across 10 provinces in Western Java, Sumatra, and Kalimantan.

Meanwhile, Pelindo III’s baa3 issuer rating reflects its BCA of ba1 and is a one-notch uplift based on Moody’s expectation that the state-run company will receive strong support from the Indonesian government in times of need.

Pelindo III is Indonesia’s second largest port operator with 43 ports across seven provinces in central and eastern Indonesia.

Moody’s explains that the BCAs of Pelindo II and Pelindo III are underpinned by their dominant position in Indonesia and in an industry with high barriers to entry, and by their continued favorable domestic industry dynamics.

However, the volatile global macroeconomic environment has resulted in a challenging global trade environment, which is in turn affecting the financial profiles of the two companies.

“Despite the global macroeconomic uncertainty, both companies continue to project significant expansionary capex (capital expenditures), resulting in weakening financial metrics,” said Ray Tay, a Moody’s vice president and senior analyst.

“Nevertheless, Pelindo II’s business profile features greater recurring income; such income is largely insulated from volume risk when compared with Pelindo III’s operations,” added Tay. “Such a situation partially mitigates the impact of Pelindo II’s weakening throughput, which is a result of global macroeconomic uncertainty.”

Still, there is limited headroom in Pelindo II’s BCA because the company’s financial metrics are only marginally better than Pelindo III’s and as the gateway for Indonesia’s international trade, it will be more exposed to the volatile global trade environment.

The ratings outlook is stable, reflecting Pelindo II and Pelindo III’s stable underlying business and financial profiles, and Moody’s expectation that the companies will maintain their dominant positions in their respective areas of coverage, the companies’ capex plans will experience minimal cost or schedule overruns, and there will be no material changes to the their ownership at least over the next two to three years.

“Pelindo II’s ratings could be upgraded if Indonesia’s sovereign rating is upgraded, and if the company’s underlying credit quality remains consistent with its BCA. Absent an upgrade to the sovereign rating, an upgrade to Pelindo II’s ratings is very unlikely, because the company’s business profile is highly dependent on the Indonesian economy,” said Moody’s.

Given Pelindo III’s weaker financial metrics, its ratings are unlikely to be upgraded without both a material improvement in its BCA and an upgrade to the sovereign rating, added Moody’s.

Pelindo II handled container throughput of 5.9 million 20-foot equivalent units (TEUs) or about 45% of Indonesia’s entire container throughput in 2015. It also operates Indonesia’s largest and busiest container port, Tanjung Priok in Jakarta. Tanjung Priok handled over 5.1 million TEUs in 2015 and is also Indonesia’s main international container gateway.

Pelabuhan Indonesia III handled container throughput of 4.4 million TEUs or about 33% of Indonesia’s entire container throughput in 2015. It operates the Tanjung Perak port, Indonesia’s second busiest container port, and which handled 3.1 million TEUs in 2015.

The Pelindo companies are wholly owned by the Ministry of State Owned Enterprises and regulated by the Ministry of Transportation.

Photo: Sakurai Midori, (Multi-license with GFDL and Creative Commons CC-BY 2.5)