(Fitch Ratings - Singapore/Hong Kong - 10 Jun 20250--Fitch Ratings has affirmed Indonesia-based PT Kilang Pertamina Internasional's (KPI) Long-Term Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook.
KPI is fully owned by PT Pertamina (Persero) (BBB/Stable), and we equalise KPI's IDR with that of its stronger parent based on our assessment of 'High' strategic and operational incentives for Pertamina to support KPI, under Fitch's Parent and Subsidiary Linkage (PSL) Rating Criteria.
KPI's Standalone Credit Profile (SCP) is constrained by weak financial metrics. KPI incurred an EBITDA loss in 2024, weighed down by an old asset base and challenging industry conditions. We forecast its EBITDA interest coverage to remain below 2.0x until 2026, despite an earnings recovery, while EBITDA net leverage is forecast to be high at above 10x in the next three years. Nonetheless, KPI's liquidity is supported by a shareholder loan facility from Pertamina, which we expect to continue.
Key Rating Drivers
Rating Equalised with Parent: Our assessment of Pertamina's 'High' strategic incentive to support KPI is underpinned by the competitive advantage that KPI provides to the parent and Indonesia in terms of product and energy security, and the potential for KPI's significant capacity and margin growth. The 'High' operational support incentive is strengthened by KPI's contribution of the majority of Pertamina's fuel distribution and retail volumes, and Pertamina's high degree of control over KPI, which includes annual budget approvals and key appointments.
Continued Support from Parent: Pertamina has been supporting KPI by extending a USD6 billion loan facility at a low interest rate. Pertamina also allowed an adjustment to KPI's product pricing in 2024, which boosted revenue by over USD450 million. KPI was also able to accrue interest on the shareholder loan, instead of paying it, to support its liquidity.
EBITDA Loss, Weak NCI: KPI incurred an EBITDA loss in 2024 amid weak product spreads. Global refining margins have been affected by weaker demand for petroleum products while refining capacity has been increasing. KPI's refining margins are weaker than that of newer and more complex refiners in the region due to its lower average Nelson Complexity Index (NCI) of 6.7. A higher NCI increases refiners' flexibility to optimise their product and crude feedstock mix, improving their ability to navigate industry downturns.
Gradual Improvement in Financial Metrics: We forecast KPI's gross cash profit per barrel of processed crude oil to recover to USD2-3 over 2025-2027 (2024: -USD1.1, 2021-2024 average: USD2.4). KPI should benefit from more conducive industry conditions and a better NCI following capacity expansion at its Balikpapan refinery. Global product demand should continue to rise, but ample refining capacity is likely to impede a swift rebound in industry margins.
We forecast KPI's EBITDA interest coverage to improve to 1.0x in 2025 and 1.8x by 2026 due to EBITDA growth. However, we expect free cash flow (FCF) to remain negative on sustained capex in the next three years, while leverage will be above 10x.
Refinery Capacity Enhancements: KPI is undertaking a 100,000 barrel per day (bpd) expansion at its Balikpapan refinery, which is scheduled to become operational by September 2025. The expansion will also improve the refinery's NCI to 8.0, from 4.2, and KPI's average NCI to 7.7. Thereafter, we expect KPI to undertake further projects for incremental refining and petrochemical capacity additions, some of which are at a design stage.
Progress on KPI's 55:45 joint venture with Rosneft for a large greenfield refinery in Tuban has been slow, and we have not included it in our forecast due to significant uncertainty, given KPI's weak financial position.
Large Scale, Asset Diversification: KPI owns over 90% of Indonesia's total refining capacity of around 1 million bpd across six locations. Its scale and asset diversification reduce risk to EBITDA from unforeseen refinery shutdowns. KPI's business profile also benefits to some extent from growing product demand in Indonesia, which is a net oil importer. Over 80% of KPI's sales go to another Pertamina subsidiary, PT Pertamina Patra Niaga (AAA(idn)/Stable), under long-term contracts at market-linked prices.
Peer Analysis
KPI's PSL-based rating can be compared with those of peers Binh Son Refining and Petrochemical Joint Stock Company (BSR, BB+/Stable, SCP: bb-) and HPCL-Mittal Energy Limited (HMEL, BB+/Stable, SCP: bb-). BSR is one of two refineries based in Vietnam, with a capacity of around 148,000 bpd. HMEL operates a highly complex refinery, with capacity of around 230,000 bpd and an integrated petrochemical plant with capacity of around 2 million tonnes per year in northern India.
KPI's rating is equalised with that of its stronger parent due to 'High' strategic and operational incentives for support, like BSR. Energy security drives Fitch's assessment of a 'High' strategic incentive for the parent to support BSR. BSR's parent also exerts significant control, approves annual budgets, and appoints the board and key executives.
HMEL's rating benefits from a two-notch uplift from its SCP, based on Fitch's assessment that its parent has 'Medium' strategic and operational incentives to support. The legal incentives are 'Low', in the absence of a guarantee or a cross-default clause covering HMEL. Our assessment of stronger strategic and operational incentives for support to KPI are based on its key long-term role in enhancing energy security for its parent and a higher degree of integration in operations and management.
Key Assumptions
Fitch's Key Assumptions Within the Rating Case for the Issuer:
- Crude throughput of around 335 million barrels in 2025, increasing to around 370 million barrels by 2027;
- Gross cash profit per barrel of crude throughput of USD1.9 in 2025, improving to USD2.4 in 2026 and USD2.9 in 2027;
- Annual capex of USD1.2 billion in 2025 and USD1.0 billion thereafter;
- No dividend payments to Pertamina in 2025 and 2026, USD50 million in 2027;
- No equity infusion by Pertamina.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
- A downgrade in Pertamina's IDR;
- Any weakening of Pertamina's incentives to support KPI.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
- Any upgrade in the Pertamina's IDR, provided the parent's incentives to support KPI remain intact.
For Pertamina's rating, the following sensitivities were outlined by Fitch in a Rating Action Commentary on 14 May 2025.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
- Negative rating action on the sovereign
- Significant weakening of the likelihood of state support
Factors that could, individually or collectively, lead to positive rating action/upgrade:
- Positive rating action on the sovereign, provided there is no significant weakening in the likelihood of government support
Liquidity and Debt Structure
KPI had a USD3.4 billion shareholder loan as of end-2024, which the company classifies as a short-term loan due to its revolving nature. KPI also had USD2.8 billion outstanding under a project loan for the Balikpapan refinery expansion. KPI will begin repaying the project loan from July 2025, and the maturities will total around USD400 million until 2027.
We estimate that KPI will be able to meet the maturities of the project loan, despite negative FCF, with the help of Pertamina in the form of rollover and additional drawdowns under the shareholder loan facility.
Issuer Profile
KPI is Indonesia's predominant crude oil refiner, with a capacity of around 1 million bpd.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
Fitch equalises our IDR and Outlook on KPI with that of the parent, Pertamina, based on the Parent and Subsidiary Linkage Rating Criteria. We assess Pertamina as having 'High' strategic and operational, and 'Medium' legal incentives to support KPI.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores. (ends)
