PEFINDO: PT Industri Kereta Api Indonesia (Persero) rated “idBBB+” with “negative” outlook

(December 10, 2021)--PEFINDO has affirmed its “idBBB+” ratings for PT Industri Kereta Api Indonesia (Persero) (INKA) and “idBBB+(sy)” rating for its Sukuk Mudharabah I Year 2020. The outlook for the corporate rating is maintained at “negative” to anticipate weaker than expected credit profile due to reduced capital expenditure (capex) program from PT Kereta Api Indonesia (Persero) (KAII, idAA+/Negative) amid Covid19 pandemic, hindering INKA’s revenue prospects going forward, as well as slower inventory turnover, which exposes it to higher than anticipated interest burden, as INKA relies heavily on short-term credit facilities to fund its working capital requirements.

An obligor rated idBBB has an adequate capacity to meet its long-term financial commitments relative to that of other Indonesian obligors.

However, adverse economic conditions or changing circumstances are more likely to weaken its capacity to meet its financial commitments. The plus (+) sign indicates that the rating is relatively strong within its category.

The suffix (sy) means that the rating mandates compliance with Islamic principles.

The corporate rating reflects INKA’s strong support from the government, leading market position in rolling stock manufacturing, and strong financial flexibility. The rating is constrained by its aggressive capital structure, weak cash flow protection measures, and exposure to the fluctuation of raw material and component costs.

We may lower the rating if INKA’s long-dated inventory position extends to the degree that it will significantly weaken its profitability because of the heavier interest burden, and consequently, becoming more leverage as it needs to take on more debt to fund its heavy working capital requirements. We may also lower the rating if KAII’s reduced capex as an effort to minimize the impact from Covid-19 hinders INKA’s revenue growth prospects persistently. The outlook may be revised to stable if INKA is able to shorten its inventory position, leading to better capital structure and cash flow protection measures on sustained basis.

INKA is a state-owned manufacturing company that mainly produces rolling stock products, and is the only player in Southeast Asia in this industry. Its products include passenger wagons, freight cars, several units of electric train carriages (EMU), diesel train carriages (DMU), locomotives, bogies, engineering, procurement and construction (EPC projects), and rail-related services. INKA has two subsidiaries to support its main business: PT Inka Multi Solusi, which provides total solution provider services in the field of construction and trading of railroad components/spare parts and land transportation products, and PT Rekaindo Global Jasa, which is engaged in engineering consulting services and support train components. INKA is fully owned by the Indonesian government. (ends)