Daily Brief Energy/Materials: Pertamina Geothermal Energy, Tata Steel Ltd, Guangzhou Tinci Materials Technlgy, Earthstone Energy and more

• Pertamina Geothermal Energy (PGE) raised around US$600m in its Indonesia IPO. PGE is an Indonesian state owned power producer which utilizes geothermal energy to produce electricity.
• PGE currently manages 13 Geothermal Working Areas with a total capacity of 1,877 MW, of which 672 MW is owned by it, while 1,205 MW is via joint operations.
• In our previous notes, we looked at the company’s past performance and valuations. In this note, we talk about the deal dynamics ahead of its listing.

• Pertamina Geothermal Energy (PGEO IJ) priced its IPO at IDR875 per share to raise gross proceeds of IDR9.1 trillion (US$600 million). The shares will start trading tomorrow.
• We previously discussed the IPO in Pertamina Geothermal IPO: The Investment Case and Pertamina Geothermal IPO: Valuation Insights. 
• Peers have modestly re-rated and the IPO price continues to imply a discount to the median peer CY2023 EV/EBITDA multiple. Therefore, the IPO price remains attractive.

We view Tata Steel as “Low Risk” on the LARA scale. The company has delivered outstanding results in recent years (before the current downturn in the steel industry), with significant deleveraging and strong earnings growth. This resulted in a substantial boost to its credit profile. We view favourably the company’s track record of achieving guidance, especially in terms of deleveraging. The business’ cyclical nature is offset by Tata Steel’s commitment to paying down debt, balancing growth and deleveraging.

We like Tata Steel’s size, complete vertical integration and diversified operations. The Indian operations enjoy strong domestic demand (which supports capacity expansion), and benefit from trade protectionism (a safeguard duty). We incorporate a credit uplift on account of Tata Group’s strong reputation, which partly mitigates the highly cyclical nature of Tata Steel’s commoditised steel-making business.

Our Credit Bias on Tata Steel is “Negative”. This is due to a sharp deterioration in the operating environment, especially in Europe, driven by high energy and coking coal costs. The structural weaknesses in the European business will likely weigh on the group during downturns.

The ESG Impact on Credit is “Neutral”. The metal & mining industry is exposed to regulatory and geopolitical risks. Furthermore, the nature of the industry places Tata Steel under scrutiny from environmental agencies and investors. However, the company has managed this well by making significant efforts for environmental factors. That said, there is room for improvement in the management of water, waste and toxic materials, as well as in social aspects. While there has been some controversy (most notably in the sudden change of chairman at Tata Sons in 2016, and later at Tata Steel), this was some time ago and the new chairman has since proven himself. Thus, we see Controversies as “Immaterial”.

• Guangzhou Tinci Materials Technlgy (002709 CH) is looking to raise up to US$1.5bn in its upcoming Swiss GDR listing. Bookrunners on the deal are CICC, HSBC, and JPMorgan.
• As per the firm’s filings, it is to issue no more than 289m A-shares, or not exceeding 15% of the firm’s total ordinary share capital.
• In this note, we discuss the GDR’s timeline, and the firm’s recent financial performance.

• We are updating our estimates to reflect the operating outlook Earthstone provided on February 16, 2023, and changes to certain assumptions around commodity prices and costs.
• We expect detailed 4Q22 financial results in early March.
• 4Q22 production averaged ~104.8 MBOE/d, above the high end of management’s previous 98-102 MBOE/d guidance.