Photo by Chandra Asri

Singapore — Moody’s Investors Service has assigned a Ba3 rating to Chandra Asri Petrochemical Tbk (P.T.)’s (Ba3 stable) proposed $300 million senior unsecured notes.

The proposed notes will be issued by Chandra Asri, the largest petrochemical producer in Indonesia (Baa3 positive), and guaranteed by its subsidiaries, PT Styrindo Mono Indonesia and PT Petrokima Butadiene Indonesia. Proceeds from the notes issuance will be used for the funding of its ongoing capacity and plant expansion capital expenditure programs.

RATING RATIONALE

“The issuance of the notes will improve Chandra Asri’s liquidity profile by partially pre-funding planned capital expenditures of $375 million in 2018 and $513 million in 2019,” says Brian Grieser, a Moody’s Vice President and Senior Credit Officer.

Chandra Asri has identified five key committed and pipeline projects which will cost a combined $370 million during 2018-2019: 1) increasing capacity at its butadiene plant, 2) constructing a new polyethylene plant, 3) revamping its naphtha cracker, 4) debottlenecking its polypropylene plant, and 5) constructing a methyl tertiary butyl ether
(MTBE) plant and a Butene-1 plant.

The balance of Chandra Asri’s likely capital expenditures are related to a planned feasibility study to build and operate a second petrochemical complex and other turnaround maintenance projects on existing plants.

Proceeds from the notes will bolster an already solid liquidity profile, which benefits from cash on hand of $212 million at 30 June 2017. The company completed a rights issue in August 2017, raising $372 million. As such, Moody’s expects that Chandra Asri’s cash balance — proforma for the notes issuance — will total between $800 million and $900 million.

The Ba3 rating on the notes reflects Moody’s expectation that the unsecured notes will represent the majority of the company’s total debt over the 2-3 years. Post issuance, secured debt will account for less than 15% of total assets.

Chandra Asri’s Ba3 corporate family rating reflects: (1) its leading position in the Indonesian petrochemicals market, (2) an increasingly diversified product portfolio, (3) its low leverage (debt/EBITDA) of 0.7x as of 30 June 2017 (1.2x proforma for the notes issuance), (4) its strong cash flow generation, and (5) an excellent liquidity profile.

The rating is constrained by the company’s: (1) volatile operating margins due to its exposure to commodity petrochemical products, (2) asset concentration on the Indonesian island of Java, and (3) substantial growth in capital spending over the next 3-5 years.

The stable ratings outlook reflects Moody’s expectation that Chandra Asri’s operating performance and cash flow from operations will remain strong over the next 12-18 months. Moody’s expects capital spending to ramp up over the next two years, as the company executes its expansion projects, resulting in negative free cash flow.

Chandr Asri’s rating could be upgraded if its planned capacity expansion is executed on time and on budget, and its free cash flow generation remains positive through the cycle. Specific credit metrics that Moody’s would consider in upgrading the rating include a debt-to-EBITDA below 2.0x, with an EBITDA margin of around 25%-30% on an ongoing basis, given the cyclical nature of the petrochemicals industry.

The company’s rating could be downgraded if: (1) its credit metrics deteriorate such that its leverage is maintained at 3.0x over an extended period, (2) its liquidity deteriorates such that its cash balance falls below $100 million, or (3) it initiates large incremental
debt-funded expansion projects.

Chandra Asri Petrochemical Tbk (P.T.) — listed on the Jakarta Stock Exchange — is an integrated petrochemical company operating the only naphtha cracker in Indonesia.

It has a production capacity of 860 thousand tonnes per annum (ktpa) for ethylene, 470 ktpa for propylene, 400 ktpa for py-gas, 315 ktpa for mixed C4, 336 ktpa for polyethylene, and 480 ktpa for polypropylene. Chandra Asri also has an annual styrene monomer production capacity of 340 ktpa and the capacity to produce 100 ktpa of Butadiene.

The company was established in January 2011 through the merger of PT
Chandra Asri and PT Tri Polyta Indonesia Tbk.

Chandra Asri is owned by PT Barito Pacific Tbk (46.26%), the Siam Cement Group — through its subsidiary, SCG Chemicals Co., Ltd. (one of the largest integrated petrochemical companies in Thailand) — (30.57%), and
Prajogo Pangestu (14.11%), with the remaining shares held by public
investors (9.06%).

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