Moody's has today put on review for possible upgrade its B2 corporate family rating on PT Chandra Asri, and its B2 rating on the US$ bonds issued by Altus Capital Pte Ltd, which are guaranteed by Chandra Asri and PT Styrindo Mono Indonesia.
"The review was initiated in response to Chandra Asri's proposed merger with its Jakarta-listed sister company PT Tri Polyta Indonesia Tbk [TPIA], which should benefit the company's credit profile," says Renee Lam, a Moody's Vice President and lead analyst for Chandra Asri, in a press release that released yesterday.
The review acknowledges Chandra Asri's improved financial metrics, with reported debt to EBITDA at 1.9x for 1H 2010, predicated largely on petrochemical product spreads being stronger than expectations.
"The company has also enhanced its liquidity by expanding its banking relationships, which mitigates concerns about its limited financial flexibility," adds Lam.
Tri Polyta, majority owned by PT Barito Pacific Tbk, which is a common major shareholder of Chandra Asri, has been the latter's customer for propylene, accounting for 18% of Chandra Asri's sales revenue in 2009.
Tri Polyta has moderate leverage, with debt to EBITDA at 0.9x in 1H 2010 and a net cash position (as of June 31, 2010).
The proposed merger entails a share swap between Chandra Asri and TPIA, thus, Chandra Asri will not lay out any cash for the merger, and transaction costs should be modest.
Moreover, if completed, the transaction would result in further downstream integration of Chandra Asri, as well as higher sales and a more diversified customer base.
However, the management participation of Temasek, which holds 30% of Chandra Asrim, in the merged entity may be lower than its current level in the company.
Moody's considers Temasek's involvement in the privately held Chandra Asri an important mitigant to corporate governance concerns.
Nonetheless, the importance of this support element to Chandra Asri's credit profile may diminish, as the merged entity will be a publicly listed company, subject to disclosures and transparency requirements of the Indonesia Stock Exchange and Bapepam-LK.
Moody's also expects the proposed merger with 100% share swap will not trigger a change of control under the bond indentures.
In its review, Moody's will consider Temasek's involvement and role in the merged entity, and the resulting credit implications, the operating profile of the merged entity, the projected financial profile, including the capital investment plans, of the combined entity, and the degree of support from the major lenders to the merged entity.
The last rating action with respect to Chandra Asri was taken on February 17, 2010, when its B2 ratings were affirmed and removed from their provisional status.
"The review was initiated in response to Chandra Asri's proposed merger with its Jakarta-listed sister company PT Tri Polyta Indonesia Tbk [TPIA], which should benefit the company's credit profile," says Renee Lam, a Moody's Vice President and lead analyst for Chandra Asri, in a press release that released yesterday.
The review acknowledges Chandra Asri's improved financial metrics, with reported debt to EBITDA at 1.9x for 1H 2010, predicated largely on petrochemical product spreads being stronger than expectations.
"The company has also enhanced its liquidity by expanding its banking relationships, which mitigates concerns about its limited financial flexibility," adds Lam.
Tri Polyta, majority owned by PT Barito Pacific Tbk, which is a common major shareholder of Chandra Asri, has been the latter's customer for propylene, accounting for 18% of Chandra Asri's sales revenue in 2009.
Tri Polyta has moderate leverage, with debt to EBITDA at 0.9x in 1H 2010 and a net cash position (as of June 31, 2010).
The proposed merger entails a share swap between Chandra Asri and TPIA, thus, Chandra Asri will not lay out any cash for the merger, and transaction costs should be modest.
Moreover, if completed, the transaction would result in further downstream integration of Chandra Asri, as well as higher sales and a more diversified customer base.
However, the management participation of Temasek, which holds 30% of Chandra Asrim, in the merged entity may be lower than its current level in the company.
Moody's considers Temasek's involvement in the privately held Chandra Asri an important mitigant to corporate governance concerns.
Nonetheless, the importance of this support element to Chandra Asri's credit profile may diminish, as the merged entity will be a publicly listed company, subject to disclosures and transparency requirements of the Indonesia Stock Exchange and Bapepam-LK.
Moody's also expects the proposed merger with 100% share swap will not trigger a change of control under the bond indentures.
In its review, Moody's will consider Temasek's involvement and role in the merged entity, and the resulting credit implications, the operating profile of the merged entity, the projected financial profile, including the capital investment plans, of the combined entity, and the degree of support from the major lenders to the merged entity.
The last rating action with respect to Chandra Asri was taken on February 17, 2010, when its B2 ratings were affirmed and removed from their provisional status.
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