Jan 10, 2011

Sulfindo Adiusaha sets 5-year bonds

PT Sulfindo Adiusaha today announces a 5 year US$ bond issuance. The bonds will be arranged by Barclays Capital and Standard Chartered Securities. 
In a statement today, Standard & Poor's Ratings Services today assigned its B long-term corporate credit rating to Sulfindo. The outlook is stable.
Standard & Poor's also assigned its B issue rating to the proposed senior secured notes to be issued by Sulfindo Netherlands B.V. Sulfindo and some of its operating subsidiaries guarantee the notes, which mature in 2016.
"The rating on Sulfindo reflects the company's highly leveraged financial risk profile and exposure to the cyclical chlor-alkali industry, which results in volatile prices in its end-products," said Standard & Poor's credit analyst Wee Khim Loy. 
"The rating also factored in the company's large investment requirement, execution risk from its power plant project, and single-site concentration risk, even though the manufacturing facilities are separated by public roads."
Sulfindo's manufacturing facilities are located at Merak, Banten Province, in Indonesia. The following factors offset the above rating weaknesses to some extent: Sulfindo's strong domestic market position, fully integrated manufacturing facilities, and favorable industry outlook for its products.
"We believe the company's US$230 million power plant project poses significant execution risks, although the project is managed by an experienced engineering, procurement and construction [EPC] contractor, Daewoo Engineering Company, which is a subsidiary of Posco E&C," Loy said.
The power project, apart from being funded by the 2016 bond proceeds, is also heavily dependent on internal cash flow generation for the two years when it is under construction. 
"We estimate US$90 million-US$100 million of the total project cost will be funded by the company's internal cash flow. In our view, any cost over-run or delay in the completion of the project would significantly affect Sulfindo's financial risk profile.
The stable outlook on the rating reflects our expectation that Sulfindo's proposed bond issue will succeed, and that the company maintains its strong domestic market position and cost advantage over its peers. 
Sulfindo aims to be publicly listed in 2011 to raise US$40 million to reduce debts and provide for working capital. However, as the timing and certainty of the offering could not be determined, Standard & Poor's has not factored this into the rating.
"We may lower the rating on Sulfindo if the company's liquidity and financial flexibility comes under pressure through: a significant delay or cancellation of its bond issuance; an increase in project execution risk from cost over-run or delayed completion; or cash flow being insufficient to cover its short-term obligations, such that EBITDA to interest cover falls below 2x.

Disclosure: No position at the stock mentioned above.

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