Jan 17, 2011

Moody's upgrades Semen Gresik to Ba1

Moody's Investors Service has upgraded the corporate family rating of PT Semen Gresik (Persero) Tbk (Semen Gresik) to Ba1 from Ba2. The rating outlook is stable.
This rating action concludes the review initiated on December 2, 2010, and also reflects Moody's decision to raise the Indonesian Government's sovereign rating to Ba1/stable
"Semen Gresik's credit strength remains impressive despite the company being part way through a major expansion programme, the first for over ten years," said Alan Greene, Moody's Lead Analyst for the company, in a press statement today.
Moody's notes that as of September 30, 2010, Semen Gresik reported cash of Rp3.4 trillion and borrowings of only Rp0.4 trillion.
"Furthermore, given the company's strong liquidity, we expect Semen Gresik's own credit profile to remain robust through 2011 and 2012, even as the company considers overseas acquisitions, and despite the upward pressure on energy costs", added Greene.
With over 90% of its revenues derived domestically, Semen Gresik is entirely exposed to the economic, social and political environment in Indonesia as well as to the inherent cyclicality of the construction materials industry. As a result, the rating for Semen Gresik is closely aligned to the rating of the country.
As Semen Gresik is 51% owned by the Indonesian government (Ba1/ stable), Moody's overlays the stand alone credit strength 11, which equates to a Ba1 rating on Moody's rating scale, with its joint default analysis for government-related issuers.
Based on Moody's view of the moderate level of support and dependence between Indonesia and the company, there is no uplift applied to the stand alone rating.
Moody's expects Semen Gresik to maintain a strong credit profile for the rating level and anticipates a modest softening of credit metrics in the short-term while the company undertakes the current debt-financed expansion.
Upward pressure on the rating may be limited until the current expansion and potential acquisition programs have been largely completed.
However, the company's limited product and geographic diversification and continued dependence on the domestic economy are likely to constrain the rating to the sovereign level.
Downward pressure on the rating could develop should the company's credit strength markedly deteriorate.
This might be reflected in declining market share to below 35%-40%, or weaker credit metrics such that operating margins fall below 20%-23% or adjusted debt/EBITDA exceeds 2.0x on a sustainable basis.
Semen Gresik is the largest cement producer in Indonesia. It has a total production capacity of 19.0 million tons per annum with facilities located in Tuban (East Java), Padang (West Sumatra) and Tonasa (South Sulawesi).

Disclosure: No position at the stock mentioned above. 

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