Sep 29, 2010

Moody's may downgrade BSP ratings

Moody's Investors Service has put on review for possible downgrade the B3 corporate family and secured bond rating of PT Bakrie Sumatera Plantations Tbk (BSP).
"This rating action is driven by a range of concerns about BSP that have accumulated during recent months," says Alan Greene, a Moody's Vice President and Senior Credit Officer, in a press statement.
The company has seen a steady increase in leverage as reported in its 2Q 2010 financial statements despite a large rights issue of US$520 million completed earlier this year, some major accounting discrepancies were discovered in Q1 2010, and performance by the CPO business has been generally lackluster due to unusual weather patterns.
"In addition, we see uncertainty about the completion of the long-running acquisition of the Domba Mas oleo-chemical plants, with the timing of completion and structure of debt at that level still under negotiation," says Greene.
Moody's rating review will focus on the progress of the Domba Mas acquisition, the resulting terms and conditions of the debt at the acquired oleo chemical plants and potential for subordination of BSP's bondholders, BSP's plans for the start-up of downstream operations and the associated supply and offtake arrangements, and the refinancing plans for the US$160 million maturing bonds in November 2011.
Moody's expects to complete the review no later than the end of October 2010.  The last rating action with respect to BSP was taken on April 16, 2009, when its corporate family and secured bond ratings were downgraded to B3 from B2 with a negative outlook.
BSP's ratings have been assigned by evaluating factors Moody's believes are relevant to the company's credit profile, including its business risk and competitive position compared with other companies within the industry, capital structure and financial risk, projected performance over the near to intermediate term, and management's track record and tolerance for risk.
These attributes were compared against other issuers both within and outside of BSP's core industry. Its ratings are believed to be comparable to those of other issuers of similar credit risk.
BSP, is an Indonesian upstream plantation company operating mainly in Sumatra, Indonesia, with rubber plantations of some 19,000 hectares and oil palm plantations of 110,000 hectares.
It was 42% owned by the conglomerate PT Bakrie & Brothers Group (BNBR) (as of 30 June, 2010) and is consolidated into BNBR's financial statements. BSP was listed on both the Jakarta and Surabaya Stock Exchanges in 1990.

Disclosure: No position at the stock mentioned above. 

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