Jan 14, 2011

Agri Resources rating confirmed at Caa1

Moody's Investors Service has confirmed its Caa1 corporate family rating on Agri International Resources Pte Ltd (AIRPL) as well as its rating on the senior secured bond issued by AI Finance B.V., which is wholly owned and guaranteed by AIRPL. The outlook on the ratings is negative.
This rating action concludes the review for possible downgrade, initiated on September 27, 2010.
"The rating action follows the downgrade of AIRPL's holding company, Bakrie Sumatera Plantations's (BSP), Caa1/Negative rating and reflects both the close operating and financial dependencies between the two companies" said Alan Greene, a Moody's Vice President and Senior Credit Officer, in a statement yesterday.
"In addition, following BSP's purchase of Domba Mas, BSP's need for palm oil, and thus its reliance on AIRPL, has increased," said Greene.
AIRPL's standalone liquidity remains weak, indicating a limited ability to meet interest payments and the final bond maturity in July 2012.
Furthermore, adverse weather tempered production volume in 2010.
"Absent any external support, AIRPL is unlikely to be able to cover its capex, working capital, and debt service requirements out of internally generated cash flow," said Greene, also Lead Analyst for AIRPL AIRPL's Caa1 rating reflects its limited scale, private ownership, and operating track record.
On the other hand, the rating also takes into consideration favorable long-term industry fundamentals, the operating relationship with BSP in the form of an off-take contract for all of AIRPL's production, and the potential for financial support from BSP.
AIRPL became a subsidiary of BSP in March 2010 and accounted for 37% of BSP's mature palm oil plantations as at September 2010.
The rating outlook could return to stable if BSP can satisfactorily address its debt refinancing and AIRPL can demonstrate a stand-alone financial profile with an acceptable liquidity position. The ratings may experience downward pressure if there is no real progress in the refinancing of debts at BSP or AIRPL.
Furthermore, a rating downgrade could also be triggered if palm oil prices and production volumes fall below Moody's expectations, such that the company's ability to generate cash flow is impaired.
Downward pressure would emerge if BSP were to substantially reduce its stake in AIRPL or indicate an unwillingness to financially support AIRPL or if BSP's own rating were lowered.
The last rating action with respect to AIRPL was taken on 27 September 2010, when its Caa1 corporate family and secured bond ratings were placed on review for downgrade.
AIRPL's ratings have been assigned by evaluating factors Moody's believes are relevant to the company's credit profile, including its i) business risk and competitive position compared with other companies within the industry; ii) capital structure and financial risk; iii) projected performance over the near to intermediate term; and iv) management's track record and tolerance for risk.
These attributes were compared against other issuers both within and outside of AIRPL's core industry; its ratings are believed to be comparable to those of other issuers of similar credit risk.
Agri International Resources Pte Ltd was incorporated in Singapore in May 2007. It is 75.3%-owned by Bakrie Plantations.
AIRPL's operating subsidiary (Agri Resources B.V.) owns two oil palm plantations in Sumatra, with a total land utilization rights covering 56,618 hectares, of which 32,103 hectares were planted and 27,642 hectares were mature as at 30 September 2010. 

Disclosure: No position at the stock mentioned above.

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