Photo by Gajah Tunggal

Singapore, July 31, 2017 — Moody’s Investors Service has placed the Caa1
corporate family rating (CFR) of Gajah Tunggal Tbk (P.T.) and the Caa1
rating on its $500 million senior secured notes due February 2018 on
review for upgrade following the announcement of Gajah Tunggal’s
refinancing plans.

Moody’s has also assigned a Caa1 rating to the proposed senior secured
notes due 2022. The proposed notes have also been placed on review for


On 31 July 2017, Gajah Tunggal announced that it has entered into a five
year $250 million senior secured loan facility and launched a senior
secured notes offering. Proceeds from the loan and notes will be used to
refinance the $500 million notes maturing in February 2018.

“Gajah Tunggal’s announcement of the committed loan facility and notes
offering is a significant step in the refinancing of its upcoming notes
and signals that it has access to multiple funding options to address the
elevated refinancing risk reflected in the Caa1 rating,” says Brian
Grieser, a Moody’s Vice President and Senior Credit Officer.

The review for upgrade will focus on Gajah Tunggal’s ability to execute
the refinancing, as currently proposed, which would materially address
liquidity concerns arising from the upcoming maturity.

“Upon execution of the proposed refinancing plan, the CFR and the 2022
notes could be upgraded to B2 to reflect Gajah Tunggal’s solid operating
performance, improved credit metrics and reduced refinancing risk,” adds

The new capital structure will also address the bullet maturity that
existed with the current capital structure by introducing the $250
million loan with an amortizing principal balance. That said, the terms
of the new loan introduces tighter quarterly compliance covenants as well
as large quarterly amortization payments beginning in 2018.

While we believe Gajah Tunggal has the capacity to meet the debt
amortization requirements, which will initially be $12.5 million per
quarter beginning in 2018, it will weigh on cash flows and limit the
growth capital spending capacity of Gajah Tunggal.

The timing of the refinancing coincides with Gajah Tunggal’s completion of the multi-year project to build a new truck and bus radial tire manufacturing facility and expected decline in growth capital spending in 2017 and 2018.

Failure to complete the proposed refinancing plan in a timely manner will
likely result in a rating downgrade as the company’s probability of
default would rise due to its inability to raise funds necessary to repay
the 2018 notes.

The review will conclude once the transaction is substantially complete,
at which time the rating on the existing bonds will be withdrawn.

Gajah Tunggal Tbk (P.T.), headquartered in Jakarta, Indonesia, is
southeast Asia’s largest integrated tire manufacturer with capacity to
produce 55,000 tires/day of passenger car radial (PCR) tires, 14,500
tires/day of bias tires, 95,000 tires/day of motorcycle tires and 1,500
tires/day of truck and bus radial (TBR) tires.

The company also has capacity to produce 40,000 tons and 75,000 tons of tire cord and synthetic rubber per year for both internal consumption and third party sales.

Gajah Tunggal Tbk (P.T.)’s key shareholders include Denham Pte Ltd
(49.5%), a subsidiary of Chinese Tire Manufacturer Giti Tire (unrated)
and Compagnie Financiere Michelin SCmA (10%, A3 stable). The remaining
shares are publicly traded on the Indonesian Stock Exchange.


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