Apr 3, 2012

S&P affirms BBB- for Astra rating

Standard & Poor's Ratings Services (S&P) said today it affirmed its BBB- long-term corporate credit rating on PT Astra International Tbk. The outlook is stable. 
At the same time, S&P affirmed axA- long-term ASEAN regional scale rating on the company. The affirmed rating reflects Astra's bb+ stand-alone credit profile (SACP) and a one-notch uplift because of expected support from its parent, Jardine Strategic Holdings Ltd. (Jardine Group: A-/Stable/--; cnAA/--). 
The rating reflects our view that the company has a "fair" business risk profile and "modest" financial risk profile. Astra's SACP is similar to the long-term foreign currency rating on Indonesia (BB+/Positive/B; axBBB+/axA-2).
"We expect Astra to have low leverage over the next six to 18 months, excluding its captive financial services entities. Over the same period, the company should also generate strong foreign currency cash flows from the commodities businesses to service its borrowings," said Standard & Poor's credit analyst Wee Khim Loy. 
"In addition, the company has good capital market standing and excellent financial flexibility, in our view. This is because many of its operating companies are listed and have strong market positions and good profitability."
The SACP also factors in Astra's exposure to cyclical and economically sensitive sectors (such as palm oil and mining contracting), increasing competition in the automobile business, and the company's potential large investments and high execution risk in capital-intensive segments.
The one-notch of uplift due to support from Jardine Group reflects our assessment that Astra is strategically important to its parent, even though the parent does not guarantee the company's financial obligations. Jardine Group has a record of owning and closely managing its core businesses over a long period.
In our base-case scenario, we expect Astra's borrowings (excluding financial services) to increase in 2012-2013 to about Rp10 trillion-Rp11 trillion. 
As of Dec. 31, 2011, Astra's leverage is a low Rp8.5 trillion, with a debt-to-EBITDA ratio of less than 0.6x and a ratio of funds from operations (FFO) to debt of more than 90%, reflecting a "modest" financial risk profile, according to our criteria.
The company has slightly increased debt to fund its capital expenditure, but we believe the company's credit protection measures are more than adequate for its SACP. 
"We anticipate that the ratio of total debt to EBITDA will remain below 1.5x and FFO-to-debt ratio will exceed 60%. We calculated these ratios after adjusting for debt and cash flows, based on our captive finance methodology.
"The stable outlook reflects our expectation that Astra will maintain strong cash flows and liquidity. The prospects for profitability appear reasonably good. In our opinion, Astra will invest in expanding its business portfolio, but will still manage the expansion within its conservative investment framework," said Ms. Loy.
S&P could lower the rating if Astra undertakes aggressive expansion and acquisitions, leading to a significant change in its business and financial risk profiles or we assess the support from Jardine Group has weakened.
The rating agency could upgrade Astra if we raise our transfer & convertibility risk assessment of Indonesia to 'BBB' from BBB- This would be accompanied by an improvement in the company's business risk profile, particularly through greater diversification and reduced concentration of profits from a particular business segment. 
At the same time, Astra would maintain its "modest" financial risk profile and its ability to weather sovereign financial stress.

Disclosure: No position at the stock mentioned above.  

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