Standard & Poor's Ratings Services (S&P) said today that it had placed its CCC+ long-term corporate credit rating on Indonesian plantation company Agri International Resources Pte. Ltd. on CreditWatch with negative implications.
S&P also placed CCC+ issue rating on the company's guaranteed US$150 million senior secured notes due July 15, 2012, on CreditWatch with negative implications. AI Finance B.V., a wholly owned subsidiary of Agri International, issued the notes.
At the same time, the rating agency placed our CCC+ long-term corporate credit rating on Indonesian plantation company PT Bakrie Sumatera Plantations Tbk (UNSP) on CreditWatch with negative implications.
"We placed the ratings on CreditWatch because UNSP is taking longer than we had expected to finalize a loan to repay the US$150 million guaranteed notes of its subsidiary Agri International," said Standard & Poor's credit analyst Vishal Kulkarni. "A further delay would increase the risk of default by Agri International. Due to a cross default clause in UNSP's syndicated bank loan documents, a default on Agri International's notes would tantamount to a default by UNSP."
Bakrie Plantations has management control over Agri International. Both Agri International and UNSP have "weak" liquidity, as our criteria define the term.
"We expect Agri International's sources of liquidity to likely fall short of its uses over the next six months. We anticipate that UNSP's ratio of sources of liquidity to its uses will remain less than 0.5x in 2012 and 2013."
The company aims to resolve the CreditWatch placements within the next 2 weeks.
"We could lower our rating on UNSP as well as on Agri International by multiple notches to CC if UNSP fails to arrange for the loan during this time."
"At this point, an upgrade of either BSP or Agri International is unlikely even if UNSP refinances the upcoming notes," said Mr. Kulkarni. This is because of the companies' tenuous operating efficiency and weak cash flows. In addition, UNSP has sizable debt amortization.
Disclosure: No position at the stock mentioned above.
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