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Cash-strapped PLN issues Rp 1.88t in bonds to fund operations

Jakarta Post - September 9, 2020

Norman Harsono, Jakarta – State-owned electricity giant PLN officially listed Rp 1.88 trillion (US$126.9 million) worth of bonds at the Indonesia Stock Exchange (IDX) on Wednesday, as it seeks to fund its operation and expansion amid the pressure of COVID-19 relief schemes on its finances.

In a letter sent to the bourse on Tuesday, PLN revealed that the bonds comprise 10 series, half of which are conventional bonds totaling Rp 1.5 trillion and the other five of which are sukuk (sharia-compliant bonds) amounting to Rp 376.5 billion.

The bonds have varied maturity periods of five years to 20 years, according to the company's data. For the conventional bonds, the yields range from 6.7 percent for the 5-year tenure to 8.86 percent for 20-year bonds.

The conventional bonds' interest rates are all higher than the benchmark 10-year government bond rate of 6.9 percent, except for the Series A with a five-year tenure (6.7 percent), although lower than the PLN bond issuance in February with coupon rates of between 7.2 and 9.05 percent.

PLN's bond issuance expands the company's breathing space as it disburses billions of dollars in COVID-19 relief schemes on top of billions more for government-led infrastructure projects, including the program to build 35 gigawatts (GW) worth of new power plants.

"The [bonds] funds will be used to expand the 35GW program and for general corporate purposes," PLN spokeswoman Arsyadani Akmalaputri told The Jakarta Post in a short text message on Wednesday.

PLN, Indonesia's largest electricity company, has frequently issued global and domestic bonds over the past two years to patch financial problems arising from the company's expansion projects, while keeping electricity retail prices at a minimum.

The company's bonds, both the conventional and sukuk, were given a AAA rating – the highest rung – by the Indonesian credit rating agency (Pefindo) due to the company's strong government ties, market monopoly and "financial flexibility".

The company legally monopolizes the distribution of electricity, whose demand is expected to grow in the medium term, between two to three years, despite the sharp decrease due to the large-scale social restrictions (PSBB) to contain the COVID-19 outbreak.

However, Pefindo also alluded to PLN's cash flow, which is facing a major financial strain from the infrastructure projects and relief programs, part of the company's Public Service Obligations (PSO).

"The rating could be lowered if Pefindo views a material reduction in government support," wrote the agency.

Recently, the government ordered state-owned electricity company PLN to lower the electricity rates for all homes and certain businesses to boost people's purchasing power.

Under the order, PLN will cut its electricity rate, which is expressed in rupiah per kilowatt hour (Rp/KwH), by 1.5 percent. The price is down to Rp 1,444.7 per KwH between October and December this year, from the previous Rp 1,467 per KwH.

Creaking under the weight of the COVID-19 relief schemes, PLN's net profit nosedived 96.5 percent year-on-year (yoy) to Rp 251.6 billion in the first half, mainly caused by foreign exchange losses amid a weak rupiah exchange rate.

Source: https://www.thejakartapost.com/news/2020/09/09/cash-strapped-pln-issues-rp-1-88t-in-bonds-to-fund-operations.html