Moody's affirms Chandra Asri's Ba3 rating; outlook stable

(Singapore, April 23, 2021) -- Moody's Investors Service has affirmed the Ba3 corporate family rating (CFR) of Chandra Asri Petrochemical Tbk (P.T.) (CAP).

At the same time, Moody's has affirmed the Ba3 rating on CAP's senior unsecured notes. The notes were issued by CAP and guaranteed by its subsidiaries, Styrindo Mono Indonesia (P.T.) and Petrokima Butadiene Indonesia (P.T.).

The rating outlook remains stable.

"The rating affirmation reflects our expectation that CAP's credit metrics will improve in 2021 and be supportive of its Ba3 rating, with adjusted debt/EBITDA at around 2.8x over the next 12 months," says Hui Ting Sim, a Moody's Analyst. "The company also has very good liquidity, with an inclination to hold large cash balances that mitigate risks stemming from margin cyclicality."

"However, CAP's credit profile will be exposed to execution and funding risks if it proceeds with the development of a second petrochemical complex, for which final investment decision will be made in 2022," adds Sim.

RATINGS RATIONALE

Moody's expects that higher product spreads for commodity chemicals in 2021 will drive an increase in CAP's adjusted EBITDA to around $300 million in 2021 from $200 million in 2020. Prices for commodity chemicals have already strengthened in the early months of 2021 because of higher oil prices, supply outages and a degree of global economic recovery. The completion of CAP's methyl tert-butyl ether and Butene-1 plants in the third quarter of 2020 will also contribute to higher earnings.

CAP's leverage, as measured by adjusted debt/EBITDA, will decline to 2.8x in 2021 from 4.4x in 2020. CAP's financial profile remains highly exposed to the cyclicality of margins in the petrochemical industry, but its large cash holdings mitigates such risks. As of December 2020, the company is in a net cash position, with cash and cash equivalents of $919 million against a total reported debt of $844 million.

Capital spending at CAP will be low at around $60 million-$80 million per year if the company does not proceed with the construction of its second petrochemical complex, which it estimates will cost $4 billion-$5 billion. Because of the coronavirus pandemic, CAP has delayed to 2022 its final investment decision on the project. High proportion of debt in the funding mix for the project will be credit negative.

Moody's expects CAP to maintain its very good liquidity over the next 18 months, with sufficient cash to cover its scheduled debt maturities of $160 million as well as projected dividends and capital spending of around $80 million and $115 million, respectively.

CAP's Ba3 rating also reflects the company's leading position in Indonesia's (Baa2 stable) petrochemical market, but is constrained by its asset concentration in the Indonesian island of Java.

ESG CONSIDERATIONS

CAP's operations within the commodity petrochemical sector are exposed to high environmental risks, primarily related to waste and pollution. These risks are mitigated by the company's continuous efforts to prevent the negative impact of waste and emissions through investments and asset optimization. Over the last two years, there have been zero incident reported by the company in its operations.

As the leading integrated petrochemical company in Indonesia, CAP's social risks are also elevated, given the increased social concern over single-use plastics, plastic waste and plastic recycling. The government's ban on single-use plastic bags in some regions in Indonesia, which came into effect in 2020, could lower domestic demand for polyethylene. Nevertheless, the impact on CAP is unlikely to be material. According to company, the grade of polyethylene sold by CAP for single-use plastic bags contributed less than5% of its total revenue in 2020.

CAP has also initiated sustainability programs to support the government in dealing with plastic waste, including implementing the construction of plastic asphalt roads and waste bank management in Cilegon.

CAP's operations are exposed to safety risks, which are mitigated by the company's solid safety record. There were no fatalities or lost-time accidents reported in 2020.

In terms of governance risks, Moody's has considered CAP's concentrated ownership by Barito Pacific and its primary shareholder, Prajogo Pangestu. This risk is mitigated by the board's oversight, exercised through the presence of the strategic minority shareholder, Siam Cement Group, through SCG Chemical, and three independent commissioners on its seven-member board.

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

The stable rating outlook reflects Moody's expectation that CAP's credit metrics will continue to improve over the next 12 months while the company maintains very good liquidity.

Moody's is unlikely to consider an upgrade until there is clarity on CAP's decision and funding plan on the development of its second petrochemical complex.

CAP's rating could be downgraded if the company's credit metrics deteriorate, such that (1) its leverage remains above 3.0x over an extended period; (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 these ratings was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Chandra Asri Petrochemical Tbk (P.T.) (CAP) is a commodity petrochemical company operating the only naphtha cracker in Indonesia. The company, which is listed on the Jakarta Stock Exchange, was established in January 2011 after the merger of PT Chandra Asri and PT Tri Polyta Indonesia Tbk.

As of January 2021, CAP's key shareholders were Barito Pacific Tbk (P.T.) and its primary shareholder, Prajogo Pangestu, which hold an effective stake of around 62%; and Siam Cement Group through SCG Chemicals Company Limited (SCG Chemical), one of Thailand's largest integrated petrochemical companies, which holds a 30.57% stake.

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.

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. (ends)