Singapore, January 29, 2018 -- Moody's Investors Service has assigned a first-time B2 corporate
family rating (CFR) to Sulfindo Adiusaha (P.T.).
At the same time, Moody's has assigned a B2 rating to the proposed
senior unsecured notes due 2023. The notes will be issued by Sulfindo
and guaranteed by its 95%-owned subsidiary, Merak
Energi Indonesia (P.T.) (MEI).
The ratings outlook is stable.
Proceeds of the notes issuance will be primarily used to repay existing
debt, fund capital expenditures and for other general corporate
purposes.
RATINGS RATIONALE
"Sulfindo's B2 CFR reflects its established market position
in the Indonesian chlor-alkali and polyvinyl chloride (PVC) industries,
low cost operations, and improved operating performance,"
says Brian Grieser, a Moody's Vice President and Senior Credit Officer.
Sulfindo is a commodity-chemical producer and distributor of caustic
soda, ethylene dichloride (EDC) and PVC, which accounted for
approximately 45%, 25% and 29% of revenue during
the nine months ended 30 September 2017. The balance of sales are
from hydrochloric acid and sodium hypochloride.
The B2 CFR reflects Moody's expectation that the proposed refinancing
will materially reduce Sulfindo's dependence on short term funding,
by eliminating loan amortization payments, and enable prospective
compliance with financial maintenance covenants in its working capital
facilities.
The CFR is also constrained by Sulfindo's exposure to earnings and
cash flow volatility given the commodity nature of its raw materials,
which include ethylene, coal, salt and water, and its
final products. Combined, Moody's estimates that ethylene
and electricity accounted for about 72% of cost of goods sold in
2017, including the cost of Sulfindo's captive power generation.
This exposure to volatile raw material costs is somewhat mitigated by
the companies operation of a captive 2x 60MW coal fired power plant in
Merak, Indonesia (Baa3 positive), the integrated pipeline
with Chandra Asri Petrochemical Tbk (P.T.) (Ba3 stable)
which allows for the low cost delivery of ethylene and the close proximity
of key customers which reduces logistic costs.
Moody's expects that Sulfindo will maintain adjusted financial leverage
of around 4.0x-4.5x in 2018; which is consistent
with the B2 ratings. We expect the company to maintain EBITDA margins
between 16% to 19% over the next 12 months benefitting from
improved prices for its caustic soda and PVC and the likely growth in
end-market demand in 2018 and 2019.
The B2 rating on the proposed senior unsecured notes reflect Moody's
expectation that the new notes will represent the large majority in the
post--refinancing capital structure.
The stable outlook reflects Moody's view that the recent improvement
in Sulfindo's operating performance, highlighted by improved
EBITDA margins and cash flows in 2017, is sustainable in 2018 and
2019. The outlook also incorporates Moody's expectation that
Sulfindo will be free cash flow positive in 2018 and will allocate cash
to debt reduction, thereby reducing its reliance on short term funding.
The ratings could be downgraded if the company fails to address its high
level of debt maturities in 2018 and 2019 in a timely manner. Further,
the rating could also be downgraded, if the company were to begin
paying dividends or make large debt funded acquisitions such that the
company's credit metrics deteriorate. Credit metrics indicative
of downward pressure on the ratings include adjusted debt/EBITDA exceeding
5.0x for an extended period.
An upgrade is unlikely at this time given the company's exposure
to the commodity chemical cycle, small scale, track record
of debt restructurings and its weak liquidity profile. A ratings
upgrade would require adjusted debt/EBITDA to be maintained below 3.0x
for an extended period.
The principal methodology used in these ratings was Chemical Industry
published in January 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Sulfindo Adiusaha (P.T.) is a fully integrated chlor-alkali
and PVC producer in Indonesia. Sulfindo's plants are located
at a 28 hectare site in Merak, Indonesia and includes plants for
the production of caustic soda and chlorine, ethylene dichloride
(EDC), vinyl chloride monomer (VCM) and PVC.
Sulfindo is owned by entities controlled by Debora Wahjutirto Tanoyo.
The company has been owned and controlled by Ms. Tanoyo's
family since 2001.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Brian Grieser
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077