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Announcement:

Moody's affirms Semen Gresik's ratings, outlook changed to positive

09 Sep 2010

Hong Kong, September 09, 2010 -- Moody's Investors Service has affirmed its Ba2 corporate family rating for PT Semen Gresik (Persero) Tbk ("Semen Gresik") and at the same time changed the outlook to positive from stable.

"The positive outlook is driven by our expectation that Semen Gresik will be able to sustain a strong credit profile while undergoing a significant debt-financed capacity expansion project, such that the company's financial metrics remain well placed for the rating level," says Laura Acres, a Moody's Vice President -- Senior Credit Officer. Adding, "Semen Gresik remains favourably positioned to capitalize on Indonesia's growing infrastructure development programmes, particularly outside of Java where it enjoys a dominant market position."

"In recent years Semen Gresik has remained in a substantial net cash position which we do not anticipate changing despite the company's plans to incur a significant amount of debt over the next 12-18 months to fund its capacity expansion and power plant projects," adds Acres, also Moody's lead Analyst for Semen Gresik.

However, these factors are partially offset by the company's lack of product and market diversification. As a single product producer, with over 90% of its revenues derived domestically, Semen Gresik is entirely exposed to economic, social and political pressures in Indonesia as well as the inherent cyclicality of the construction materials industry.

As Semen Gresik is 51% owned by the Indonesian government (Ba2/ positive), Moody's overlays the company's standalone credit strength with a joint default analysis for government-related issuers. This involves estimating the likelihood, in Moody's view, that in the event of impending failure, the government would assist sufficiently to prevent default. Moody's has assigned a medium level of support and dependency to Semen Gresik under this approach, which does not result in any uplift in the rating at this point in time.

With adjusted debt/EBITDA of less than 1.0x, Semen Gresik's financial profile is very strong, and would suggest a higher rating if viewed in isolation. However, in our view, the company's lack of geographical and product diversification, together with the high degree of reliance on the domestic economy subjects it to a high degree of Indonesian country risk and therefore currently constrains the rating at the sovereign level. With this in mind, an upgrade in the Government of Indonesia combined with maintenance of a strong credit profile, is likely to trigger an upgrade of Semen Gresik's rating.

Given the positive outlook, downward pressure is unlikely at this point in time. However, the outlook could revert to stable should Semen Gresik's underlying credit strength deteriorate, such that market share falls below 35-40%, and that its credit metrics are likely to weaken - operating margin drops below 20-23% and/or adjusted debt/EBITDA exceeds 2.0x, on a sustainable basis.

The principal methodology used in rating Semen Gresik was Moody's global building materials methodology, published in July 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

The last rating action on Semen Gresik was on June 30, 2009, when Moody's withdrew the company's Aa2.id national scale rating. Prior to that, the last ration action was on October 1, 2007, when Moody's assigned Semen Gresik's first time Ba2 corporate family rating.

Semen Gresik is the largest cement player 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).

Hong Kong
Laura Acres
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Peter Choy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)

Moody's affirms Semen Gresik's ratings, outlook changed to positive
No Related Data.
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