Moody's affirms Chandra Asri's CFR at Ba3; outlook stable

(Singapore, May 03, 2019) -- Moody's Investors Service has affirmed the Ba3 corporate family rating (CFR) of Chandra Asri Petrochemical Tbk (P.T.) (CAP).

Moody's has also affirmed the Ba3 rating on CAP's $300 million 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 outlook is stable.

RATINGS RATIONALE

"The Ba3 CFR balances CAP's strong credit metrics and prudent financial policies — as highlighted by its low financial leverage and very good liquidity — with its exposure to commodity petrochemicals and large capital spending plans," says Brian Grieser, a Moody's Vice President and Senior Credit Officer.

CAP's adjusted debt/EBITDA of 1.6x and net cash position are both supportive of its Ba3 CFR. Strong financial management provides meaningful protection to swings in CAP's profitability, with such swings inherent in the commodity petrochemicals industry.

CAP's EBITDA margins weakened to 16.0% in 2018 from 22.7% in 2017, largely due to the tightening of ethylene and polyethylene spreads in the fourth quarter as naphtha prices began to fall, and CAP was still working through high price inventories.

CAP is currently embarking on four expansion projects and initial spending on its planned investment in its second petrochemical plant that will likely require an investment of over $450 million in 2019 and almost $300 million in 2020. We do not expect CAP to take a financial investment decision on the second petrochemical plant until late 2020 or early 2021.

Moody's expects that CAP will continue to manage its balance sheet prudently, despite its large capital spending plans and Moody's expectations that margins will remain between 15.0% and 18.0% in 2019.

The stable outlook continues to reflect Moody's expectation that CAP's operating performance and cash flow generation will remain solid but at mid-cycle levels over the next 12-18 months.

Moody's could upgrade CAP's ratings if (1) the company's planned capacity expansion is executed on time and within budget, and (2) if CAP maintains debt/EBITDA below 2x, given the cyclical nature of the petrochemicals industry.

Moody's could downgrade the company's ratings if (1) its credit metrics deteriorate, such that leverage exceeds 3.0x over an extended period, (2) its liquidity deteriorates, such that its cash balance falls below $100 million, or (3) it initiates large incremental debt-funded expansion projects.

The principal methodology used in these ratings was Chemical Industry published in March 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Chandra Asri Petrochemical Tbk (P.T.) (CAP), listed on the Jakarta Stock Exchange, is a commodity petrochemicals 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 pygas, 315 ktpa for mixed C4, 336 ktpa for polyethylene and 480 ktpa for polypropylene.

CAP also has an annual styrene monomer production capacity of 340 ktpa and butadiene production of 137 ktpa.

The company was established in January 2011 through the merger of PT Chandra Asri and PT Tri Polyta Indonesia Tbk.

CAP is owned by Barito Pacific Tbk (P.T.) (Barito Pacific; 41.51%); the Siam Cement Group, through its subsidiary SCG Chemicals Co., Ltd. (one of the largest integrated petrochemical companies in Thailand) (30.57%); Prajogo Pangestu (14.77%), Marigold Resources (4.75%), a subsidiary of Barito Pacific, and Bangkok Bank (2.08%). The remaining shares are held by public investors (6.32%). (ends)