Chandra Asri’s Rights Issue to Add Flexibility to CAP2 Funding
Friday, August 6 2021 - 12:41 AM WIB
(Fitch Ratings-Singapore-05 August 20210)--PT Chandra Asri Petrochemical Tbk’s (CAP, BB-/Stable) plan to raise up to USD1.7 billion from a rights issue will support the Indonesia-based company’s proposed investment in a new petrochemical facility, CAP2, Fitch Ratings says. The potential funds from the equity issuance and the strong earnings outlook for CAP will underpin the company’s rating headroom as it expects the investment to cost about USD5 billion over four to five years.
CAP announced on 30 July 2021 that Thai Oil Public Company Limited (A+(tha)/Negative) will become a strategic investor via a 15% stake in the company. CAP expects to raise up to USD1.3 billion from Thai Oil and its existing shareholders in the equity issuance. Another USD400 million may be raised upon the completion of the final investment decision (FID) on CAP2. The proceeds will be used to fund CAP2, in which CAP has already invested around USD300 million. The deal is subject to regulatory approvals.
Fitch expects the funds raised to help CAP maintain adequate credit metrics during the early stages of CAP2’s construction. We expect CAP to fund the remaining investment with debt towards the later stages of the development. The impact on CAP’s leverage, however, would depend on CAP2’s final construction costs, funding mix and investment phases. Fitch expects greater clarity on these once the FID is completed.
CAP had minimal net debt of USD128 million at end-June 2021. Its operations are mature and require minimal capex, which should help it generate meaningful free cash flows over the construction phase of CAP2. The company had EBITDA of USD275 million in 1H21, higher than the USD187 million in 2020, helped by strong petrochemical spreads and robust local demand. Fitch, however, expects its petrochemical spreads to moderate in the medium-to-long term from the exceptionally high levels of 1H21. Fitch also expects CAP to continue to maintain near zero net debt in 2021 amid its strong earnings. (ends)