Bad Rating Of BBB And Increase In Refinancing Flowers Can Distorte PGEO's Stock Performance

Illustration. (Photo: Doc. Antara)

JAKARTA - The issuance of foreign debt securities from PT Pertamina Geothermal Energy Tbk (PGEO) was questioned following the poor rating of BBB bonds and the increase in refinancing interest, so that it could distort the company's stock performance in the future.

Assistant Vice President Fixed Income RHB Sekuritas Adra Wijasena said the company must install higher bond coupons due to the rating of BBB bonds from Fitch Ratings which is the lowest investment grade.

With such low bond quality, continued Adra, the company's total cost of funds will also be higher. On the other hand, the US Treasury, which is the benchmark for the issuance of global bonds, is also entering a trend of increasing interest at this time.

Referring to the yield of INDON28 bonds (April 2028) with BBB ratings, the coupons offered are around 4.45 percent.

"Because the rating is lower, it is natural that the company must offer higher coupons, namely 5.15 percent because the investment risk is also very high," he told reporters, quoted on Saturday, April 29.

Adra also reminded that there are a number of risks that the company must face in issuing this foreign debt letter. First, the risk of liquidity, where the global central bank is currently in the tightening phase.

In addition, he is worried that the absorption of the bonds offered by PGEO will not run optimally.

"With a BBB rating and global conditions like this, I'm afraid that investors will be risk-averse. So to avoid low-rated bonds first," he said.

On a separate occasion, Finvesol Consulting CEO Fendy Susianto said the increase in PGEO's coupons/loan interest would have an impact on the cost of equity capital, namely the level of return desired by fund providers, both investors and creditors and related to the risk of investing in the company's shares.

"So the cost of equity goes up and this will risk a decrease in stock prices, unless in restructuring or refinancing this will get better interest," he told the media recently.

Seeing the current condition, Fendy is pessimistic that the issuer in the geothermal business can get lower bond coupons than the previous loan interest rate. He refers to global economic conditions, where the US Central Bank aka the Fed has increased aggressively in recent years.

"Not yet if investors consolidate interest rates again, so the bond coupons may be higher," he explained.

Fendy said that PGEO did not have many options to solve this problem because the loan mature was getting closer, namely June 2023. So that the company inevitably has to take a corporate action to cover its debt.

"The potential calls of refinancing must be done even if it becomes a bad sentiment for market players. From a liquidity perspective, this policy must be taken. But in terms of performance, the comparison of bond coupons with long loan interest will definitely worsen, because the cost is higher, interest expand is greater," he explained.

Previously reported, PGEO plans to issue green bonds outside Indonesia amounting to 400 million US dollars or around Rp. 6 trillion with 5.15 percent coupon per year due in 2028.

This Pertamina subsidiary will use bond proceeds to pay off all remaining US$400 million in debt with interest below 5 percent achieved in June 2021 through a syndicate. The loan facility will mature on June 23 this year.