Moody’s Investors Service has downgraded to Ba2 from Ba1 the corporate family rating (CFR) of PT Saka Energi Indonesia and the rating on its US$625 million senior unsecured notes due 2024. The outlook on all ratings is negative.

The downgrade reflects that financial support from Saka’s parent, Perusahaan Gas Negara (PGAS), has weakened following the early shareholder loan repayment, and that its declining reserves and production will pressure its operating profile and credit  metrics in 2019-2020.

In July 2018, Saka repaid US$200 million of the $838 million shareholder loan at PGAS’s request, which is well in advance of the January 2021 debt maturity. In addition, there is increasing pressure on Saka’s operating profile as its annual production will fall to 42-43 thousand barrels of oil equivalent per day (kboepd) in 2019-2020 after two of its production licenses expired in Q3 2018. Its production in 1H 2018 was 55.1 kboepd.

The negative outlook reflects the heightened uncertainty relating to Saka’s role and importance to PGAS and the consolidated Pertamina/PGAS group, given the ongoing corporate reorganization. Given the negative outlook, a rating upgrade is unlikely.