Fitch Affirms Aneka Gas Industri at 'A-(idn)'; Stable Outlook
Wednesday, June 11 2014 - 10:52 AM WIB
Temporary Increase in Leverage: The increase in borrowing to support its intensive capex and slower than expected revenue growth has raised AGI's leverage in 2013. Net debt to operating EBITDA increased to 5.0x in 2013, above Fitch Ratings' previous negative rating guideline of 3.5x. Nonetheless, Fitch expects expanded capacity and capital injection in 2014 to help the company generate higher cash flow and maintain satisfactory credit metrics. We expect the hike in leverage to be temporary and to moderate below 4.0x by end-2014 onwards, consistent with its ratings
Manageable Execution Risk: The company is investing in new plants, such as in Bitung, Rungkut, Bontang, and Subang. We expect the execution risk to be manageable given that more than half of this added capacity has been contracted on a medium to long term basis. The industry demand growth prospects are also positive, driven by the medical, infrastructure, and commodity sectors (eg. crude palm oil and smelter construction). AGI's track record in completing large capital projects is another positive factor for its ratings.
Stable Margin: AGI enjoys stable profitability as a result of strong pricing power and long term contracts with a diversified base of customers in which it is able to pass on the majority of its costs to the latter. Its customers include companies in the medical and processed food industries, which are more defensive in nature.
Established Market Position: The rating reflects AGI's strong position as the second largest industrial gas producer in Indonesia with total market share of more than 20%. Together with its sister company (Samator), they control half of the market in Indonesia and about 90% of the country's medical gas market. We believe AGI is able to maintain its leadership position as the barriers to entry are relatively high.
Small Operating Scale: Despite its leading position in the domestic market, AGI's operating scale (2013 EBITDA: USD 23mn) is considered to be small by global standards. Although this may constrain AGI's operational and financial flexibility, Fitch notes that AGI's expansion could result in improving economies of scale and a wider network to help support a more efficient operation with a more favourable cost structure and better access to funding in the longer term.
Capital Injection by Shareholder: Major shareholders have shown commitment by constantly injecting equity to support the company's expansion since 2007. This year, AGI's shareholder has injected IDR100bn and is planning to inject another IDR70bn in to the company. Additional capital will help the company to maintain adequate liquidity. (ends)