May 16, 2011

S&P lowers Sulfindo rating to CCC

Standard & Poor's Ratings Services (S&P) said today that it had lowered its long-term corporate credit rating on PT Sulfindo Adiusaha (Sulfindo) to CCC from B-. The outlook is developing. 
"We also removed the rating from credit watch, where it had been placed with negative implications on February 11, 2011. At the same time, we withdrew our B-/watch negative issue rating on the company's proposed US$250 million bond because the issue was cancelled," said a press statement today.
Standard & Poor's credit analyst Xavier Jean said S&P also lowered the rating on Sulfindo because it believes that the company's liquidity will remain under pressure over the next 6 to 9 months, even though the company received US$47.5 million in committed bank facilities at the end of April 2011. 
The committed facilities will only alleviate Sulfindo's liquidity pressures until the end of 2011. Nevertheless, further external funding will be critical for the company to meet its substantial committed capital expenditure and debt maturities in the fourth quarter of 2011 and in 2012.
"We expect Sulfindo to remain highly committed to its US$150 million capital expenditure plan over the rest of 2011 and 2012 despite increasing debt repayment requirements." 
This is because the plan would strengthen the company's cost competitiveness over the medium term and reduce its reliance on electricity supplier PT Perusahaan Listrik Negara (Persero) (BB/Stable/--).
"We believe Sulfindo has weak sources of liquidity to cover its needs in the next nine months. We expect the company's liquidity sources of about US$135 million to be barely sufficient to cover our estimate of its liquidity needs of US$125 million over the next nine months." 
Liquidity sources over the period include our estimate of funds from operations of US$35 million to US$40 million, surplus cash balance of about US$45 million, and the newly obtained committed facilities of US$47.5 million. 
Sources also include Sulfindo's short-term investments of US$11 million, mostly comprising bonds of Indonesian companies; we apply a haircut of 50% to these bonds to reflect their lack of marketability. 
Liquidity needs over the next nine months include about US$65 million of committed capital expenditure, about US$30 million in principal repayments, and our estimate of working capital requirements of US$20 million to US$30 million.

Disclosure: No position at the stock mentioned above.

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