Moody's Investors Service has changed the rating outlook to positive for PT Chandra Asri's (Chandri Asri) B2 corporate family rating and the bond rating on the USD bonds issued by Altus Capital Pte Ltd guaranteed by Chandra Asri and PT Styrindo Mono Indonesia. At the same time, the B2 ratings are confirmed. This concludes the rating review initiated on Sep 27, 2010.
"The positive outlook reflects the benefits to Chandra Asri resulting from its merger with PT Tri Polyta Tbk (TPI)," said Renee Lam, a Moody's Vice President and senior analyst, in a press statement today.
"Business profile of the merged entity, PT Chandra Asri Petrochemical Tbk [CAP], will benefit from a moderate level of downstream integration as a result of the addition of polypropylene to its product lines, as well as a widened customer base," said Lam.
The top 10 customers of CAP are expected to account for 36% of pro-forma 2009 combined sales, compared to 55% for Chandra Asri prior to the merger.
"The merged entity also benefits from a strengthened equity base, and higher balance-sheet liquidity given TPI's net cash position prior to the merger," said Lam.
"CAP has also enhanced its liquidity management by expanding banking relationships. While Temasek Holdings' shareholding in CAP has reduced to about 23% from the previous 30%, Moody's believes that an acceptable level of corporate governance is assured with two previous Temasek-appointed members joining the new Board, and CAP's public listed status," said Lam.
The company is therefore well-positioned at its B2 rating despite its small global presence, asset concentration, and the inherent cyclical nature of the petrochemical industry, leading to highly volatile earnings and cash flow.
Upward rating pressure could develop if (1) the company maintains low debt leverage through industry cycles; (2) its capex programs are executed within the planned time frame and budget; (3) it maintains its liquidity profile while improving its financial flexibility.
Moody's sees adjusted debt/book capitalization at below 25% and adjusted debt/EBITDA maintained at 2-2.5x, on a sustained basis, as indicators of a rating upgrade.
On the other hand, the rating outlook could revert back to stable if the company's petrochemical product spreads experience abrupt downturn leading to continued losses for an extended period, or if its debt leverage-- adjusted Debt/EBITDA -- increases to 3x-3.5x which could result from new acquisitions, substantial capital expenditures, or distributions to shareholders.
The last rating action on Chandra Asri was on Sep 27, 2010 when its ratings were placed on review for possible upgrade. The principal methodology used in rating Chandra Asri was Moody's Global Chemical Industry published in December 2009.
Chandra Asri is the largest petrochemical producer in Indonesia. Through the merger of Chandra Asri with TPI, a polypropylene producer, Chandra Asri Petrochemical was established in January 2011 with Barito Pacific owning about 72% stake. Temasek Holdings, the investment arm of the Singaporean government, owns a 23% stake. CAP is listed on Indonesia Stock Exchange.
Disclosure: No position at the stock mentioned above.
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