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Rating Action:

Moody's downgrades Sritex to Ca; outlook negative

09 Apr 2021

Singapore, April 09, 2021 -- Moody's Investors Service has downgraded Sri Rejeki Isman Tbk (P.T.)'s (Sritex) corporate family rating (CFR) to Ca from B3.

Moody's has also downgraded to Ca from B3 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.

The ratings outlook has been changed to negative from ratings under review.

Today's rating action concludes the review for downgrade, which was initiated on 22 March 2021.

The rating action follows Sritex's announcement on 3 April that several of the company's bank facilities have reduced materially and the company has appointed advisors for its debt restructuring process.

"Today's rating action reflects the significant uncertainties over the sustainability of Sritex's current capital structure and the risk that Sritex's highly challenged liquidity situation could result in a near term acceleration of payments relating to the company's obligations," says Stephanie Cheong, a Moody's Analyst and lead analyst for Sritex.

The planned restructuring of its bank debt, if and when completed, would likely be considered by Moody's as a distressed exchange, which is a default under the rating agency's definition.

RATINGS RATIONALE

Sritex's loss of access to bank funding will significantly disrupt its operations, given the company's reliance on short-term funding to support its working capital and operational needs. The loss adds to the company's already significant liquidity challenges. As of 31 December 2020, Sritex had around $278 million outstanding under its short-term working capital facilities, which will expire through 2021. In addition, Sritex faces refinancing risk on its $350 million loan due January 2022. Sritex's cash holdings of $188 million as of 31 December 2020 will not be sufficient to cover its upcoming debt obligations.

A missed principal or interest payment on its bank loans, if not remediated within the cure period, is an event of default under the indenture of its US dollar bonds due 2024 and 2025 and could lead to an acceleration of payments.

Moody's expects the recovery value for Sritex's bondholders to be low in a default scenario.

The negative outlook reflects the additional uncertainty around the recovery rate for its combined $375 million bonds in case of a default.

In terms of environmental, social and governance (ESG) factors, the rating incorporates governance risks arising from the company's concentrated ownership structure and weak financial management resulting in tight liquidity and a debt restructuring.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Upward rating momentum is unlikely in the near term but could arise if a sustainable capital structure is put in place following the company's restructuring discussions.

The ratings could be downgraded further if Moody's estimates that recovery prospects for creditors are lower than those implied by the Ca rating.

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 $1.3 billion in 2020.

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, 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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 office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Stephanie Cheong
Analyst
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

Ian Lewis
Associate Managing Director
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

No Related Data.
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