ข่าวประชาสัมพันธ์การเงิน/หลักทรัพย์

PT Chandra Asri Outlook Revised To Stable On Parent’s Stabilizing Credit Profile; ‘B+’ Rating Affirmed

          SINGAPORE (S&P Global Ratings) Sept. 14, 2018--S&P Global Ratings today revised its outlook on PT Chandra Asri Petrochemical Tbk. to stable from developing. At the same time, we also affirmed our 'B+' long-term issuer credit rating on the company and the 'B+' issue rating on its senior unsecured notes. Chandra Asri is an Indonesia-based producer of petrochemical products. 
          We revised the outlook to stable to reflect our view that the credit profile of Chandra Asri's parent, PT Barito Pacific Tbk., has stabilized following its recently completed reorganization and is unlikely to change over the next 12-18 months. We assess Barito Pacific's credit profile at 'b+' and the stand-alone credit profile of Chandra Asri as 'bb-'; we cap the rating on Chandra Asri to the level of the group credit profile. 
          We now have better visibility over the steady-state financial profile of Barito Pacific. This follows the release of its first pro forma consolidated financial statements since the company acquired a 66.67% stake in Star Energy Group Holdings Pte. Ltd., an Indonesian geothermal power producer, and the completion of a rights issue in late June 2018. Consolidated debt increased to about US$2.52 billion as of June 30, 2018, compared with about US$540 million in 2016 before the acquisition. Most of the additional debt (about US$1.7 billion) comes from the full consolidation of operating debt for Star Energy's power generation assets. Debt at the chemical operations (through Chandra Asri) is about US$600 million and debt at Barito Pacific parent level is about US$250 million as of June 30, 2018. 
          We forecast Barito Pacific's consolidated pro forma debt-to-EBITDA ratio at 3.5x-3.7x over the next 24 months. We consider that level commensurate with a 'b+' credit profile given the quality and predictability of the group's earnings. We base that projection on the following assumptions: 
          - Consolidated EBITDA for the group (on a full-year basis) at US$700 milllion-US$750 million over the next two years. 
          - Consolidated debt at Barito Pacific at US$2.4 billion-US$2.7 billion over the next two years.
          Our estimate for consolidated EBITDA assumes EBITDA of about US$350 million at Star Energy, EBITDA of at least US$350 million from Chandra Asri, and immaterial losses at the parent company's own operations.
          In our view, Chandra Asri can self-fund a sizable investment program with operating cash flows and a sizable cash balance of about US$715 million as of June 30, 2018. The company has limited need for additional debt in our base case. Debt at Star Energy is likely to stay broadly stable, given only about US$200 million of debt matures within the next two years. Finally, and unlike what it had earlier announced, Barito Pacific will use about US$111 million in additional proceeds from its rights issue for working capital purposes at subsidiaries rather than to partially repay the US$250 million bank loan. Our debt projections exclude further debt-funded investment at Barito Pacific, especially in other power projects. 
          Barito Pacific owns about 46% of Chandra Asri (and about 61%, including related party holdings) and its economic interest in Star Energy power generation assets varies from 35% for the Salak and Darajat plants to 40% for the Wayang Windu plant. Those minorities create leakage of dividends. Still, the group's cash flow adequacy and leverage ratios do not significantly change, assuming a proportionate consolidation of debt and EBITDA at its operating subsidiaries. We estimate the debt-to-EBITDA ratio, on a proportionate consolidation basis, at 3.7x-3.8x. Nearly 90% of the consolidated debt is at the operating company level and well-matched with respective subsidiaries operating cash flows. Assuming debt at the parent-level remains US$250 million or below, structural subordination risk remains manageable, in our view.
          The acquisition of Star Energy reduces the volatility of Barito Pacific's earnings, which have historically been driven by volatile profits from the chemical operations. Earnings and cash flows from Star Energy benefit from predictable power offtake agreements for both volumes and tariffs with state-owned electricity distributor PT Perusahaan Listrik Negara for the next 20 years. The capacity factor at all three power plants have been in excess of 85% since 2016, noting a one-time interruption of production at the Wayang Windu plant in 2015. 
          We equalize the rating on Chandra Asri to the level of the group credit profile because we still view the company as an integral part of the group's strategy, given it still contributes nearly 50% of the group's consolidated EBITDA. We expect Barito Pacific and related parties to maintain a majority shareholding in Chandra Asri over the next few years and exert management and financial control, especially regarding financial policies. 
          We also cap the rating on Chandra Asri to the credit profile of its group because we believe that Barito Pacific could rely on Chandra Asri's resources, through cash calls, higher dividends, asset swaps or other means, if itself or other group subsidiaries face tighter financial conditions or require liquidity. Barito Pacific has relied in the past on Chandra Asri to raise funding, most notably the US$250 million bank loan, which is collateralized with Chandra Asri shares. Barito Pacific will also rely on dividends from Chandra Asri to service its own debt. Proceeds from Chandra Asri's US$377 million rights issue in September 2017 could also technically be sent upstream to its main shareholders if needed without breaching covenants on Chandra Asri's US$300 million bond. Finally, future expansion at Chandra Asri, especially for its second naphtha cracker, may also require buying land from Barito Pacific's sponsor. 
          Chandra Asri's 'bb-' stand-alone credit profile reflects the company's still-modest scale compared with regional peers, high single-site concentration, and its exposure to volatile product spreads in the petrochemical sector. Chandra Asri's integrated operations, larger operating scale following its cracker expansion, and improved balance sheet mitigate these weaknesses.
          We project the ratio of debt-to-EBITDA below 2.0x through 2019. That level is solid for the 'bb-' SACP, but captures the inherent volatility in product spreads and sharp changes in EBITDA and operating cash flows at weaker points in the cycle. Under a mid-cycle spread environment, the company could generate at least US$175 million in EBITDA (translating into a debt-to-EBITDA ratio of 2.5x-3.0x), with the ratio not exceeding 4.0x under more stressed market conditions.
          The stable outlook on Chandra Asri reflects our expectation that the credit profile of parent Barito Pacific will remain stable over the next 12 months, with a consolidated debt-to-EBITDA ratio of close to 3.5x, and that Chandra Asri will remain a core subsidiary within the group. 
          We may lower the rating on Chandra Asri if we assess the consolidated credit profile of Barito Pacific as having substantially weakened. This could materialize if one or more of the following occurs:
          - We assess Barito Pacific's cash flow adequacy and leverage ratios as having substantially weakened because of more aggressive spending. A consolidated ratio of debt to EBITDA exceeding 4.0x without any prospect of near-term improvement would be indicative of a weaker group credit profile.
          - Barito Pacific fails to maintain ample liquidity at the parent company level or its debt maturity profile stays concentrated, leading to persistent refinancing risks.
          - Chandra Asri's own operations deteriorate materially from current levels because of a sharp and sudden decline in product spreads or much higher spending than we anticipate, diminishing the profit-generation capacity of the group as a whole.
          We may assess Chandra Asri's SACP lower at 'b+' if the company embarks in near-term and large-scale greenfield projects or its product spreads decline sharply such that its debt-to-EBITDA ratio exceeds 3.5x with no prospect of recovery. We view this situation as unlikely over the next 12 months, given our forecasts of subdued oil and naphtha prices, steady product spreads and EBITDA. 
          We may raise the rating on Chandra Asri if we assess the consolidated credit profile and balance sheet of Barito Pacific to be commensurate with at least a 'bb-' level, with a consolidated debt-to-EBITDA ratio sustainably below 3.0x after the company reorganization. A higher credit profile at Barito Pacific would also be contingent upon the group demonstrating and maintaining ample liquidity at the parent company level and proactively lengthening its debt maturity profile within the group. 
          A higher SACP at Chandra Asri is unlikely over the next 12-24 months, given the company's structural exposure to industry risks in the petrochemical sector, volatile product spreads, high operating advantage, and moderate scale compared with higher-rated peers regionally and globally. A 'bb' SACP would require the company to achieve a larger scale, broader product diversity, a permanently reduced sensitivity to fluctuations in product spreads through enhanced integration and greater economies of scale, while maintaining a debt-to-EBITDA ratio below 2.0x through a product spread cycle.