Debt Release to Pay Debt, PGEO Will Be Subject to Higher Interest

JAKARTA - A number of economists regret the debt action of PT Pertamina Geothermal Energy Tbk (PGEO) because it is also used to cover maturing short-term debt, even with higher interest potential.

Economist at the Institute for Development of Economics and Finance (Indef) Senior Aviliani said it was very unusual for a company to take debt from a more expensive fund to cover other debt with much lower interest.

"Given the current market conditions, the potential for interest will definitely increase," Aviliani told reporters recently.

For him, the capital market is tightening, making it difficult for PGEO to obtain cheap funds. "The company will bear the very high interest on bonds at a time when there is a shortage of cheap funds," said Aviliani.

Inadequate world capital market liquidity is considered to be a dilemma for the issuance of foreign bonds (global bonds) by PT Pertamina Geothermal Energy Tbk (PGEO) in the context of refinancing.

PGEO plans to issue green bonds aka green bonds outside the territory of Indonesia in the amount of USD 400 million or around IDR 6 trillion with an interest of 5.15 percent per year which matures in 2028.

PGEO will use the proceeds from the debt to pay off all remaining debt with Mandated Lead Arrangers, Initial Syndicated Creditors and PT Bank Mandiri (Persero) Tbk (BMRI) as a Facility Agent which will mature on June 23, 2023.

"On the date this Disclosure of Information was published, the remaining amount of outstanding liabilities under the Facilities Agreement is US$400 million," management said through the information disclosure on the Indonesia Stock Exchange (IDX) released Saturday, April 22, 2023.

So far, PGEO's total debt has reached USD 943.28 million consisting of long-term bank loans after deducting the maturing portion of USD 327.7 million within one year. Meanwhile, PGEO's short-term debt was still recorded at around USD 615.58 million.

Based on the facility agreement and commitment letter as of June 23, 2021, the company obtained a credit facility in the form of a bridge loan with a ceiling of USD 800 million. Until the end of 2022, the company disbursed the loan in the amount of USD 600 million which was recorded in the bank loan post.

The interest expense charged for the agreement is 3 months LIBOR plus a margin and is paid at the end of the interest period, where the margin for months 1-12 is around 0.5 percent for offshore and 0.6 percent for onshore. Meanwhile, the margin for the 19-24 months is around 0.6-0.7 percent or still below 5 percent.

Meanwhile, if you refer to the average 3-month LIBOR rate in 2021, it is only around 0.16 percent and plus the largest margin in the facility agreement as of June 23, 2021 of 0.7 percent, then the PGEO loan interest at that time was no more than 3 percent.

Thus, PGEO is expected to pay borrowing costs with higher interest in this refinancing action.