Singapore, August 03, 2017 -- Moody's Investors Service has upgraded the corporate family rating
(CFR) of Chandra Asri Petrochemical Tbk (P.T.) to Ba3 from
B1.
The outlook on the ratings is stable.
RATINGS RATIONALE
"The upgrade of Chandra Asri's CFR to Ba3 reflects the large
and sustainable improvement in its margins, cash flow generation,
financial leverage and liquidity profile since the completion of its cracker
expansion project in late 2015," says Brian Grieser,
a Moody's Vice President and Senior Credit Officer.
The cracker expansion project added significant ethylene and propylene
capacity in 2016. Moody's expects the improved operating
leverage from this capacity and other ongoing projects to result in more
resilient margins and cash flow generation during downturns in the petrochemical
cycle.
Moody's says that product spreads should tighten over the next two
years, given the likely growth in global petrochemical capacity.
Nevertheless, the spread between Chandra Asri's key olefin
and polyolefin products and its naphtha feedstock should remain at levels
such that the company can maintain EBITDA margins of around 20%
over the next 12-24 months, down from 28% for the
12-month period ended 31 March 2017.
"The Ba3 rating reflects the improvement in Chandra Asri's
balance sheet, particularly its increased cash balances and lower
debt levels, which when combined with substantially improved EBITDA
generation, have lowered leverage to below 1.0x,"
added Grieser.
Chandra Asri has announced several large capital expenditure projects
— including a butadiene plant expansion, a polypropylene plant
debottlenecking, a naphtha cracker furnace revamp, a new polyethelene
plant, a new MTBE and Butene-1 plant and a feasibility study
into constructing a second naphtha cracker -- which could result
in capital spending of roughly $1 billion over the next three years.
A second naphtha cracker would aim to add 1,000,000 tons of
ethylene capacity and various downstream derivatives products.
While still in the planning stages, this plan could cost between
$4 and $5 billion and add significant execution risk over
the next five years. The key terms and ownership structure of this
potential project have yet to be determined.
Moody's expects any financial investment decision made on this project
by Chandra Asri to be prudently financed and include strong joint venture
partners to reduce its exposure.
Moody's also expects that Chandra Asri will maintain a strong liquidity
profile and conservative financial policies, despite its heavy capital
spending plans.
The company's cash balance of $278 million at 31 March 2017,
the proceeds from its recently announced rights offering and cash flow
from operations should fully fund its capital spending plans and dividends
over the next three years.
The stable rating outlook reflects Moody's expectation that Chandra
Asri's operating performance and cash flow generation will stay strong
over the next 12-18 months. Capital spending will likely
ramp up over the next two years, as the company executes its expansion
projects, which will be largely funded by cash and cash flow from
operations.
The company's rating could be upgraded if its planned capacity expansion
is executed on time and within budget, and free cash flow generation
remains positive through the cycle. Chandra Asri will have to maintain
a debt/EBITDA below 2.0x, with EBITDA margins of around 25%-30%
on an ongoing basis for Moody's to consider upgrading its rating,
given the inherent cyclicality of the petrochemical industry.
The company's rating could be downgraded, if: (1) its credit
metrics deteriorate such that leverage is likely to be maintained at 3.0x
over an extended period; or (2) its liquidity deteriorates,
such that its cash balance falls below $100 million; or (3)
the company initiates large incremental debt-funded expansion projects.
The principal methodology used in this rating was Global Chemical Industry
Rating Methodology published in December 2013. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Chandra Asri Petrochemical Tbk (P.T.) is an integrated petrochemical
company operating the only naphtha cracker in Indonesia. The company
has a production capacity of 860 thousand tonnes per annum (ktpa) for
ethylene, 470 ktpa for propylene, 400 ktpa for py-gas,
315 ktpa for mixed C4, 336 ktpa, and 480 ktpa for polypropylene.
Chandra Asri also has an annual styrene monomer production capacity of
340 ktpa and the capacity to produce 100 ktpa of butadiene.
CAP was established in January 2011 through the merger of PT Chandra Asri
and PT Tri Polyta Indonesia Tbk. CAP is owned by PT Barito Pacific
Tbk (65.2%), the Siam Cement Group, through
its subsidiary, SCG Chemicals Co., Ltd. (one
of the largest integrated petrochemical companies in Thailand) (30.57%)
and the remaining shares are held by public investors (4.22%).
CAP is listed on the Jakarta Stock Exchange.
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
