PEFINDO affirms its “idAAA” ratings to PT Kereta Api Indonesia (Persero) and its Bonds

PEFINDO has affirmed its “idAAA” ratings to PT Kereta Api Indonesia (Persero) (KAII) and its Bond I Year 2017. The outlook for the corporate rating is “stable”.

An obligor rated idAAA has the highest rating assigned by PEFINDO. The obligors’ capacity to meet its long-term financial commitment, relative to that of other Indonesian obligors, is superior.

The rating reflects our view of the government’s strong potential support to KAII due to the strategic importance of railway transportation, its superior business position in the railway sector in Indonesia, and steady growth prospect from higher passenger volume and freight transportation. However, significant capital expenditure plans, which will result in a higher financial leverage level and weakened debt coverage in the near to medium term, as well as increased competition with other modes of transportation constrain its rating, in our view.

The rating could be lowered if we view that there is a significant deterioration in the government support, such as through a material divestment of ownership and/or if there is a decreasing public service role for the government. A significant change in the regulatory framework that could negatively affect KAII’s business and financial prospects may also trigger a rating downgrade. The rating could also be under pressure if it pursues a more aggressive financial policy, indicated by a substantially larger debt than projected, without being compensated with higher revenue generation.

KAII is a state-owned rail operator, providing passenger transport and freight rail services. It is currently the sole user of the government’s railway infrastructure. It is supported by six subsidiaries, namely Kereta Commuter Indonesia (KCI), Railink, KA Logistik, KA Properti Manajemen, Reska Multi Usaha, and KA Pariwisata. It was 100% owned by Indonesian Government as of June 30, 2019. (ends)