PEFINDO; PT Barito Pacific Tbk rated “idA”, outlook revised to “negative”

(October 8, 2020)--PEFINDO has affirmed its “idA” ratings for PT Barito Pacific Tbk (BRPT) and its Shelf Registered Bonds I Barito Pacific up to IDR1.5 trillion. However, the outlook for the corporate rating is revised to “negative” from “stable” to anticipate sustained lower cash inflow from its subsidiaries, particularly in the petrochemical business (PT Chandra Asri Petrochemical Tbk, rated idAA-/negative) as a result of lower commodity price amid BRPT’s increasing financial leverage in the near term. In August 2020, BRPT obtained USD252.7 million loan facility from Bangkok Bank to be used as part of the Company’s contribution in the financial structure to PT Indo Raya Tenaga for the construction and development of a 2x1,000 megawatt ultra-super critical power plant project. BRPT’s net debt to EBITDA and FFO to debt ratios are projected to weaken to around 4.4x and 7.6%, respectively, on average in the next two years, from 3.3x and 9.9%, respectively, as of December 31, 2019.

An obligor rated idA has a strong capacity to meet its long-term financial commitments relative to that of other Indonesian obligors.

However, the obligor is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher-rated obligors.

The rating reflects the solid market position of BRPT’s major operating segments, the favorable dividend distribution from its major subsidiaries, and the cushion the geothermal energy segment can provide against the cyclicality of the petrochemical sector. The rating is constrained by its moderate financial leverage, indirect access to the cash flow of its operating subsidiaries, and the inherent risks related to its key operating segments, in our view.

The outlook may be revised to stable if BRPT’s performance improves as reflected by improving financial profile of its petrochemical subsidiary on a sustained basis and/or deleveraging efforts at the parent company supported by higher cash flow generating capabilities from subsidiaries. The rating will be lowered if there is a sustained deterioration in its financial profile due to prolonged narrowing spread in the petrochemical business and/or higher debt than projected. The rating could also be under pressure if there is a significant deterioration in its cash flow stream from its subsidiaries, which might be triggered by prolonged COVID-19 pandemic resulting in further downturn in the petrochemical sector, and/or a natural event that severely affects the geothermal segment. The rating has not factored in the additional debt-funded capital expenditure for the construction of the second naphtha cracker under BRPT’s subsidiary, as the final investment decision has not yet been finalized.

Established in 1979, BRPT is an investment holding company that is ultimately owned by Prajogo Pangestu and his family. It currently operates in two major segments, petrochemical and geothermal energy, through its controlling stakes in PT Chandra Asri Petrochemical Tbk (TPIA, idAA-/Negative) and Star Energy Group Holdings (SEGH, unrated), respectively. It also operates in other minor segments, such as wood product manufacturing and property. As of June 30, 2020, its shareholders were Prajogo Pangestu (72.14%), PT Barito Pacific Lumber (0.21%), PT Tunggal Setia Pratama (0.34%), treasury stock (0.57%), and others (26.72%). (ends)