Singapore, January 11, 2021 -- Moody's Investors Service has assigned a B1 rating to the proposed
senior unsecured notes to be issued by Sri Rejeki Isman Tbk (P.T.)
(Sritex, B1 negative) and unconditionally and irrevocably guaranteed
by all its operating subsidiaries. The proposed notes will rank
equal to Sritex's existing senior unsecured notes.
The rating outlook is negative.
Sritex will use the net bond proceeds to refinance the $150 million
revolver tranche of its $350 million syndicated loan facility maturing
January 2022. The remainder will be used to term out short-term
working capital debt. The transaction is expected to be leverage
neutral.
RATINGS RATIONALE
"The proposed bond issuance will improve Sritex's liquidity
by lengthening its debt maturity profile and freeing up availability under
its revolver tranche and working capital lines, which can then be
used to support working capital and other operational requirements,"
says Stephanie Cheong, a Moody's Analyst.
As of 30 September 2020, Sritex had $159 million of cash
and $87 million of availability under committed bank lines,
against around $611 million of debt coming due over the next 12-18
months, namely (1) $174 million outstanding under short-term
working capital lines; (2) $65 million of medium-term
notes, of which $40 million has been paid in Q4 2020;
(3) a $350 million syndicated loan facility maturing in January
2022; and (4) around $22 million of debt amortization payments.
The company had on 2 November sought lenders' consent to extend
the maturity of its $350 million syndicated loan facility by two
years to January 2024. Sritex's lenders have until 2 February
2021 to respond if they are willing to extend. There is no minimum
acceptance amount and lenders unwilling to extend will need to be repaid
by the original January 2022 maturity date.
Sritex's B1 rating reflects its vertically integrated operations and leading
market position among Indonesian textile manufacturers. The rating
also considers the company's reliance on short-term funding
to support meaningful working capital needs amid continued challenges
in its key end-markets. The rating also incorporates governance
risk arising from the company's concentrated ownership structure and related
party transactions.
The negative outlook reflects the increasing refinancing risks associated
with Sritex's $350 million syndicated loan maturing January 2022
amid difficult market conditions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Given the negative outlook, an upgrade is unlikely over the next
12-18 months. Nevertheless, the outlook could return
to stable if Sritex materially improves its liquidity and debt structure
over the next 12 months.
Financial metrics Moody's would consider for a change in the outlook to
stable include (cash and long-term committed lines)/short-term
debt above 1.5x over the next 12-18 months, debt-to-EBITDA
below 5.0x and EBITA/interest expense above 2.25x.
Moody's could downgrade the ratings if Sritex fails to adequately address
its upcoming debt maturities by Q1 2021, or if Sritex's liquidity
deteriorates further, either because of falling cash balances,
a loss in access to working capital lines, or if working capital
fails to unwind over the next few quarters.
Financial metrics indicative of a downgrade include (1) its cash conversion
cycle remaining above 240 days; (2) debt-to-EBITDA
above 5.0x; or (3) EBITA/interest below 2.25x over
a sustained period.
The principal methodology used in this rating was Manufacturing Methodology
published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Sri Rejeki Isman Tbk (P.T.) (Sritex), based in Central
Java, Indonesia, is a vertically integrated manufacturer of
yarn, greige (raw fabric), finished fabric and apparel,
including uniforms and retail clothing. The company's operations
are spread across 25 factories, consisting of nine spinning plants,
three weaving plants, five finishing plants and eight garment plants.
Net revenue generated by the company's four divisions amounted to around
$1.2 billion in 2019.
Sritex is majority owned by the Lukminto family (60.11%).
Iwan Setiawan Lukminto, the son of founder H.M Lukminto,
has been the company's president director since 2006. The family
oversees the day-to-day operations. The remaining
39.89% share of the company is publicly traded on the Indonesian
Stock Exchange.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
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Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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This rating is solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
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The Global Scale Credit Rating on this Credit Rating Announcement was
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Please see www.moodys.com for any updates on changes to
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for additional regulatory disclosures for each credit rating.
Stephanie Cheong
Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
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Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
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