Moody's Investors Service has downgraded PT Sri Rejeki Isman Tbk (IDX: SRTX) corporate family rating to Ca from B3 with outlook negative - Photo by the Company

JAKARTA (TheInsiderStories) – Moody’s Investors Service has downgraded PT Sri Rejeki Isman Tbk (IDX: SRTX) or Sritex corporate family rating (CFR) to Ca from B3 with outlook negative. The agency has also downgraded to Ca from B3 the ratings on the US$150 million backed senior unsecured notes due in 2024, issued by Golden Legacy Pte. Ltd., and unconditionally and irrevocably guaranteed by Sritex and its subsidiaries

The rating of $225 million senior unsecured notes due in 2025, issued by Sritex and unconditionally and irrevocably guaranteed by all of its operating subsidiaries also downgraded. The ratings outlook has been changed to negative from ratings under review.

Today’ rating action concludes the review for downgrade, which was initiated on March. The rating action follows Sritex‘ announcement on April 3, that several of the company’ bank facilities have reduced materially and the company has appointed advisors for its debt restructuring process.

“Today’ rating action reflects the significant uncertainties over the sustainability of Sritex’s current capital structure and the risk that Sritex’ highly challenged liquidity situation could result in a near term acceleration of payments relating to the company’s obligations,” says Stephanie Cheong, an analysts from Moody’s in the latest report out today.

She said, the planned restructuring of its bank debt, if and when completed, would likely be considered by Moody’s as a distressed exchange, which is a default under the rating agency’ definition. Sritex‘ loss of access to bank funding will significantly disrupt its operations, given the company’ reliance on short-term funding to support its working capital and operational needs.

The loss adds to the textile firm’ already significant liquidity challenges. As of Dec. 31, 2020, the manufacturer had around $278 million outstanding under its shortterm working capital facilities, which will expire through 2021. In addition, the issuer faces refinancing risk on its $350 million loan due January 2022.

Sritex‘ cash holdings of $188 million as of 31 December 2020 will not be sufficient to cover its upcoming debt obligations. A missed principal or interest payment on its bank loans, if not remediated within the cure period, is an event of default under the indenture of its US Dollar bonds due 2024 and 2025 and could lead to an acceleration of payments. Moody’s expect the recovery value for its bondholders to be low in a default scenario.

The negative outlook reflects the additional uncertainty around the recovery rate for its combined $375 million bonds in case of a default. Sritex based in Solo, Central Java and produce yarn, raw fabric, finished fabric and apparel, including uniforms and retail clothing. The company’ operations are spread across 25 factories, consisting of nine spinning plants, three weaving plants, five finishing plants and eight garment plants.

Net revenue generated by the company’ four divisions amounted to around $1.3 billion in 2020. Sritex is majority owned by the Lukminto family (60.11 percent) and he remaining hold by public.

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