Moody's Investors Service sees no impact on the B2 corporate family rating on PT Chandra Asri and the B2 rating on its guaranteed senior secured US$ bonds due 2015 following its announcement of proposed amendments to certain covenants for its US$ bonds.
Accordingly, the ratings remain on review for possible upgrade, an action which was initiated by Moody's subsequent to Chandra Asri's earlier announcement of a proposed merger with its Jakarta-listed sister company PT Tri Polyta.
The proposed amendments will be lower the fixed charge coverage ratio, one of the debt incurrence tests, to 3.0x from 3.5x.
To reduce the required sum in the interest reserve account, allow investment in a LPG storage facility at a maximum of US$20 million, and allow the release of a portion of land from the security package on which the LPG storage facility would be built.
"While the proposed amendments provide more latitude to Chandra Asri, or the future merged entity, in terms of funding and investments, this higher degree of flexibility is also unlikely to disadvantage bondholders materially when compared with the original covenants," says Renee Lam, a Moody's VP/Senior Analyst, in a press statement obtained by Bisnis today.
The proposed fixed charge coverage ratio at 3.0x and maintenance of one semi-annual interest payment in the interest reserves account are not dissimilar in nature from other single-B rated issuers' high-yield debt covenants.
Furthermore, Moody's understands the land to be released from the security package accounts for approximately 5%, in terms of area, of Chandra Asri's current land holdings of 120 hectares.
Therefore, the exclusion of this asset from the securities should have a limited impact on the degree of protection over the bonds. Chandra Asri is the largest petrochemicals company in Indonesia.
At 30 June 2010, it had an olefins production capacity comprising 600,000 tpa of ethylene, 320,000 tpa of propylene, 280,000 tpa of py-gas, and 220,000 tpa of crude C4.
The company also operates two polyethylene production trains, with a combined production capacity of 320,000 tpa.
Disclosure: No position at the stock mentioned above.
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