PEFINDO affirms “idAA-” ratings for PT AKR Corporindo Tbk and its Bonds, outlook revised to “stable”

(March 14, 2019)-- PEFINDO has affirmed its “idAA-” ratings for PT AKR Corporindo Tbk (AKRA), its Shelf-Registered Bond I Year 2017, and Bond I Year 2012. However, we revised our outlook for AKRA’s corporate rating to “stable” from “positive” to reflect lower than expected profitability margin, which could hinder further improvement in the Company’s capital structure and cash flow protection measures.

The lower than expected profitability margin is due to slower than expected sales from its industrial estate as a result of stagnant demand for industrial land and lower than expected margin in its trading and distribution business. An obligor rated idAA differs from the highest rated obligors only to a small degree, and has a very strong capacity to meet its longterm financial commitments relative to that of other Indonesian obligors.

The minus (-) sign in a particular rating indicates that it is relatively weak within the respective rating category.

The rating reflects steady demand for fuel in Indonesia, AKRA’s extensive logistic infrastructure network, and strong cash flow protection measures and liquidity. However, the rating is constrained by risks related to further industrial estate development and exposure to the downturn in the mining sector.

The rating may be raised if AKRA improves its capital structure, as indicated by a debt to EBITDA ratio of less than 2.0x on a sustained basis, while maintaining efficient cost management in its fuel distribution business and achieving its industrial estate land sales target. In contrast, the rating will be lowered if AKRA aggressively finances its expansion with debt that is substantially larger than projected, which could weaken its capital structure and cash flow protection measures, without being compensated by stronger business performance, and if its profitability margin continues to decline resulting in lower cash flow generated.

AKRA is engaged in the trading and distribution of fuel and basic chemicals in Indonesia. Through its subsidiaries, it is also involved in logistics, manufacturing, integrated industrial estates, and ports. As of September 30, 2018, its shareholders were PT Arthakencana Rayatama (58.5%), management (0.7%), and the public (40.8%, each below 5% ownership).  (ends)