Singapore, March 22, 2021 -- Moody's Investors Service has downgraded Sri Rejeki Isman Tbk (P.T.)'s
(Sritex) corporate family rating (CFR) to B3 from B1.
Moody's has also downgraded to B3 from B1 the ratings on:
(1) the $150 million backed senior unsecured notes due in 2024,
issued by Golden Legacy Pte. Ltd. and unconditionally and
irrevocably guaranteed by Sritex and its subsidiaries; and (2) the
$225 million senior unsecured notes due in 2025, issued by
Sritex and unconditionally and irrevocably guaranteed by all of its operating
subsidiaries.
All ratings remain under review for further downgrade.
"The downgrade reflects Sritex's persistently weak liquidity
and heightened refinancing risks given ongoing and material further delays
with its loan extension exercise," says Stephanie Cheong,
a Moody's Analyst and the Lead Analyst for Sritex.
The review for further downgrade reflects continued uncertainties relating
to its refinancing plans.
The ratings review will focus on Sritex's progress on addressing
its upcoming debt maturities. More specifically, the review
will focus on (1) the progress of Sritex's discussions with its lenders
to extend the maturity date on its syndicated loan; (2) the progress
of Sritex's discussions with lenders on new bilateral loans;
(3) Sritex's ability to renew its short-term working capital
lines that will expire through 2021; (4) Sritex's working capital
management and ability to generate cash flows; and (5) the execution
of any alternative funding plans.
Moody's expects to conclude the review within 60 days.
RATINGS RATIONALE
Sritex faces high refinancing risk given its weak liquidity position and
large amounts of debt maturing over the coming quarters. Sritex's
continued reliance on banks for its refinancing needs leaves it vulnerable
to funding conditions, which have weakened amid negative sentiment
on the textile sector in Indonesia.
On 2 November 2020, Sritex submitted a request to its lenders for
a 2-year extension on its $350 million syndicated loan maturing
in January 2022. Its lenders had until 1 March 2021, an extension
from the first deadline of 2 February, to respond to the extension
request. However, a definitive agreement for the 2-year
extension has yet to appear, which increasingly weighs on Sritex's
credit profile.
Concurrently, the company has been negotiating refinancing arrangements
with existing lenders to address any potential funding gap. However,
firm agreements are yet to be put in place.
Sritex's cash holdings of $159 million as of 30 September 2020
and expected free cash flow of around $50 million over the next
15 months will not be sufficient to cover its upcoming debt obligations
of: (1) $350 million syndicated loan due January 2022;
(2) $65 million medium-term notes, of which $40
million has been paid in the fourth quarter of 2020 and $25 million
will be due in Q2 2021; (3) $15 million of debt amortization
payments; and (4) $174 million outstanding under short-term
working capital lines as of 30 September 2020.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given today's rating action, an upgrade is unlikely in the short
term. However, the ratings could be confirmed if Sritex successfully
addresses its upcoming maturities and materially improves its liquidity
and debt structure.
On the other hand, the ratings are likely to be downgraded further
if Sritex fails to put in place a concrete refinancing plan in the near
term or if Sritex's liquidity deteriorates further, either because
of (1) falling cash balances, (2) increasing short-term working
capital debt, (3) a loss in access to working capital lines,
or (4) if working capital fails to unwind over the next few quarters.
The principal methodology used in these ratings 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.
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provides certain regulatory disclosures in relation to the provisional
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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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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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