Sulfindo rating dropped to CCC by S&P

17/5/2011

Irvin Avriano A.

Sulfindo rating dropped to CCC by S&P

JAKARTA: Suddenly, global credit rating company Standard & Poor's lowered PT Sulfindo Adiusaha long-term corporate credit rating two notches to CCC from previously B-.

On a press release this week, S&P still pegged the company's rating outlook on developing level, together with removing credit watch implication negative for the rating.

The removal also applied to proposed US$250 million dollar bond related to the company's bond issuance plan cancellation, even the company already appoint Standard Chartered Bank, Barclay's Capital, and PT Victoria Sekuritas as the bond issuance arranger.

"We lowered the rating on Sulfindo because we believe that the company's liquidity will remain under pressure over the next six to 9 months, even though the company received US$47.5 mio in committed bank facilities at the end of April 2011," said S&P credit analyst Xavier Jean in the research.

He also assess the committed facilities will only alleviate Sulfindo's liquidity pressures until the end of 2011.

Nevertheless, further external funding still strongly required by the company to meet its substantial committed capital expenditure and debt maturities in the fourth quarter of 2011 and in 2012.

S&P also expect the Victoria Group chemical company to remain highly committed to its US$150 mio capital expenditure plan over the rest of 2011 and for the next year despite increasing debt repayment requirements.

The assessment also associated to the capital expenditure plan would strengthen the company's cost competitiveness over the medium term and reduce its reliance on electricity supplier PT Perusahaan Listrik Negara (PLN).

The rating action was opposite to what other credit rating company, PT Fitch Ratings Indonesia, that assess the bond issuance cancellation don't have any immediate changing in Sulfindo's rating. Fitch already set the company rating that used to known as PT Indo Chlor Prakarsa Industries, Salim Group chemical company back before Asia crisis in 1998, at B level on March.

S&P still believe Sulfindo has weak sources of liquidity to cover its needs in the next 9 months. The credit rating also expect the company's liquidity sources of about US$135 million to be barely sufficient to cover our estimate of its liquidity needs of US$125 million over the next nine months.

Liquidity sources over the period include S&P estimate of funds from operations of US$35 million to US$40 million, surplus cash balance of about US$45 million, and the newly obtained committed facilities of US$47.5 million.

Sources also include Sulfindo's short-term investments of US$11 million, mostly comprising bonds of Indonesian companies; S&P apply a haircut of 50% to these bonds to reflect their lack of marketability.

The credit rating also assess the company's liquidity needs over the next nine months include about US$65 million of committed capital expenditure, about US$30 million in principal repayments, and our estimate of working capital requirements of US$20 million to US$30 million.

The outlook is developing; the rating hinges on Sulfindo's ability to obtain sufficient funding for its committed capital expenditure and debt maturities. The company might be able to use bank loans to meet a part of its short-term needs.

Nevertheless, S&P believe liquidity needs will remain high throughout 2012 because of US$45.3 million in principal repayments on the 2005 restructured bond and the second tranche of its committed capital expenditure of about US$85 million.

S&P may raise the rating if Sulfindo is able to obtain a level of financing that we believe is sufficient to cover its liquidity needs. We could lower the rating if the company faces a covenant breach; or alters or restructures any debt instrument, which we would consider tantamount to a default.

Presiously, Indo Chlor used to be a part from three Salim Group chemical company. His name changed into Sulfindo on 1995. After 1997 crisis, Sulfindo with two other Salim companies, PT Satomo Indovyl Polimers and PT Satomo Indovyl Monomer, sold to BPPN to covert the company's debt to several banks which took over by the agency.

Company's asset sold in 2001 to Durability of the Emperor Group (Hong Kong) with ownership as much as 74.29%, Sumitomo 25%, and the rest is Timsco. The three companies finally merge into one name, Sulfindo.

Sulfindo taken over by Victoria Group which owned by Tanojo family through the youngest daughter of Wakijo Tanojo, Suzanna Tanojo. Wakijo is one of several founder from Wings Group (PT Sayap Mas Utama) which established in Surabaya, East Java.