Singapore, March 29, 2011 -- Moody's Investors Service has today assigned a provisional B2 corporate
family rating to P.T. Uniflora Prima (Uniflora).
At the same time, a provisional B2 senior secured bond rating has
been assigned to the proposed senior secured notes issued by Uniflora
Prima International Pte. Ltd., an entity wholly-owned
and guaranteed by Uniflora.
The outlook on both ratings is stable.
This is the first time Moody's has assigned ratings to Uniflora
or Uniflora Prima International Pte. Ltd.. The provisional
status of the ratings will be removed upon completion of the bond issuance
and the acquisition of the stake in P.T. Davomas Abadi Tbk
("Davomas"; Caa3).
Uniflora plans to acquire a 51.9% stake in Davomas,
with proceeds from a mandatory convertible bond of USD77 million,
which will be automatically converted into shares of Uniflora upon issuance
of the proposed senior secured notes.
The proceeds from the bond issue will be used to fund (1) expansion at
Uniflora; (2) a mandatory tender offer for the rest of Davomas'
shares, with any unutilized amount used for the repayment of a USD33
million subordinated shareholder loan provided to Davomas for working
capital purposes, pursuant to its debt restructuring exercise in
2009; (3) the full redemption of Davomas' senior secured notes
due 2011 and 2014; and (4) working capital and general corporate
purposes.
RATINGS RATIONALE
Uniflora's provisional B2 rating reflects its position as the leading
producer of cocoa butter and cocoa powder in Indonesia after acquiring
Davomas, albeit its small scale.
"After the acquisition, Uniflora will be the largest cocoa
butter and cocoa powder producer in Indonesia," says Alan
Greene, a Moody's Vice President and Senior Credit Officer.
The rating also reflects Uniflora's competitive cost structure given
its lower labor and transportation costs by international standards,
and that it sources its feedstock directly from farmers, bypassing
the middleman.
The Indonesian government's introduction of an export tax of up
to 15% on cocoa beans in April 2010, should benefit Uniflora
as it becomes more cost-efficient for foreign cocoa processors
to purchase intermediate cocoa products, as compared to raw cocoa
beans, which are now subject to this export tax.
Uniflora's key challenge includes its exposure to commodity cycles,
leading to earnings and cash flow volatility, although this can
be partially mitigated by its strategy to match its sales orders with
cocoa bean purchases to lock-in profits. Moody's is
also concerned with the transparency and corporate governance of Uniflora
given its private company status.
"The rating also recognizes the company's limited track record,
high degree of customer concentration risk, and the lack of diversification
given it operates on two sites, sources its feedstock entirely from
Indonesia, and is involved only in the cocoa beans processing business,"
says Greene, who is also Moody's Lead Analyst for Uniflora.
Uniflora began the production of cocoa butter and cocoa powder only in
June 2010 and operated at 82% capacity over six months of operation
in FY2010.
The rating also takes into consideration of Davomas' credit profile,
which is reflected in its Caa3 rating. Davomas is currently recovering
from the economic downturn, after a seven-month suspension
of its operations from May to December 2009 in an effort to conserve cash
due to significant losses from the stocking up of high-cost feedstock,
customer cancellations and steep discounts on its products amidst weak
economic conditions.
In addition to the guarantee from Uniflora, Davomas will also provide
a partial guarantee to the proposed senior secured notes after (1) the
redemption of Davomas' existing senior secured notes due 2011 and
2014; and (2) the completion of the purchase of the 51.9%
stake in Davomas by Uniflora.
The amount of guarantee provided by Davomas will be limited to the amount
of intercompany loan provided to fund (1) the redemption of Davomas'
existing 2011 and 2014 senior secured notes, together with any fees
or expenses incurred; and (2) the repayment of all or a portion of
the USD33 million shareholder loan provided to Davomas from the SPV,
with funds remaining after the mandatory share tender offer. The
amount of guarantee from Davomas will decrease as the intercompany loan
is repaid.
The stable outlook reflects the expectation that cocoa bean prices will
stabilize over the next one to two years and Uniflora will be able to
increase its production and expand its operations as planned.
Upward rating pressure could develop if Uniflora (1) establishes a longer
track record in the cocoa grinding industry, strengthens its corporate
governance and adheres to internal operational guidelines; (2) expands
and diversifies its customer base; and (3) maintains it's financial
and liquidity profiles while financial flexibility improves with sufficient
headroom under its financial covenants.
Downward pressure could develop if Uniflora's industry fundamentals
deteriorated, resulting in protracted weakness in profitability,
such that EBITDA margin remains below 20%, or if Uniflora
increases its debt leverage, which could arise from new acquisitions,
substantial capex and/or shareholder returns. Such pressure may
be evidenced by EBITA/Interest below 2.5x and debt/EBITDA above
5.0-6.0x.
The principal methodology used in this rating was Global Food -
Protein and Agriculture Industry published in September 2009.
Uniflora is a private company and one of Indonesia's largest producers
of cocoa butter and cocoa powder. The company's production
facilities are located in Serang, Banten Province, Indonesia,
and include six production lines with a total production capacity of 120,160
tonnes per annum. After acquiring Davomas, the group will
have an aggregate production capacity of 261,280 tonnes per annum.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Singapore
Alan Greene
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
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Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Moody's assigns provisional B2 rating to Uniflora Prima
