Jan 25, 2011

Fitch upgrades Fajar Surya to B+

Global rating agency Fitch Ratings has today upgraded Indonesia-based PT Fajar Surya Wisesa Tbk's (FASW) long-term foreign currency and local currency issuer default ratings (IDRs) to B+ from B. 
At the same time, Fitch has upgraded FASW's national long-term rating to A(idn) from A-(idn). 
The outlooks on these Ratings are Stable. The senior unsecured rating of Fajar's US$100 million senior notes due in 2011 has also been upgraded to B+ from B; the recovery rating remains at RR4.
The upgrade reflects Fitch's expectation of a continued improvement in Fajar's credit metrics from FY11 onwards, following the on schedule completion of its paper machine 5 (PM-5) expansion supported by healthy domestic demand for containerboard and boxboard. 
PM-5 increased Fajar's production capacity by 40% to 1m metric tonnes per annum in December 2010. However, given the robust demand for Fajar's products, plant utilisation levels are not expected to weaken much over the short- to medium-term; the company has been operating at full capacity in the past few years. The company's ratings are also supported by its position as one of the largest non-integrated producers of industrial paper in Indonesia, its long standing relationships with its main customers and its low cost production base.
The recovery in domestic demand and international paper prices since mid 2009 has allowed Fajar to increase its average selling prices by about 20% compared to FY09. 
This has consequently enabled it to increase its EBITDA to Rp520 billion in the nine months to September 2010 (FY09: Rp570 billion), an annualized improvement of 22%. Fajar's financial leverage as measured by net adjusted net debt to EBITDAR increased to 2.6x at September 2010 (FYE09: 2.3x), due to the Rp564 billion of capex that was mostly spent on the PM-5 expansion in this period. 
However, Fitch expects Fajar's leverage to decline starting FY11, with higher EBITDA generation supported by the new capacity and as its capital expenditure requirements fall over the medium-term.
Fajar's liquidity remains adequate. It had undrawn credit facilities of about Rp1.8 trillion which is sufficient to cover its short term debt maturities of Rp260 billion up to September 2011 and the US$ notes due in October 2011. In addition, it had cash reserves of Rp89 billion at September 2010.

Disclosure: No position at the stock mentioned above.

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