JAKARTA (TheInsiderStories) – Indonesian textile producer, PT Pan Brothers Tbk (IDX: PBRX) plans to issues global bond with a maximum values of US$350 million, said the issuer on Wednesday (02/12). The notes will have maximum tenure five years and the proceed uses for debt refinancing.
The management announced, proceeds from the bond issuances will be used for debt refinancing amounted to $309.75 million, excluding interest and related fees. The company expect to raises the approval from the shareholders on Jan. 6, 2021.
Due to the debt problems, Moody’s Investor Services has downgraded Pan Brothers rating form B1 to B2. Stephanie Cheong, the analyst from Moody’s, said the negative outlook reflects her expectation that diminished consumer spending on apparel and footwear globally as a result of the COVID-19 outbreak will reduce the company’ earnings and increase its working capital needs through 2020.
The manufacturer and PT Sri Rejeki Isman Tbk (IDX: SRIL) are exposed to the retail industry which has been significantly affected by the shock given its sensitivity to demand and sentiment. The ratings also incorporate governance risk arising from the company’s concentrated ownership structure and related party transactions.
Moody’s has downgraded the senior unsecured rating on the 2022 notes issued by a wholly owned subsidiary of Pan Brothers, PB International B.V. The outlook on the ratings remains negative.
“We expect Pan Brothers will have little liquidity buffer to withstand any deterioration in earnings or unexpected stretches in its working capital, and this presents a significant challenge even under its new B2 rating,” says Cheong.
At Sept. 30, Pan Brothers had a cash balance of $64 million and $36.5 million available under its core $138.5 million revolving credit facility, which Moody’s believed to be largely drawn as of the end of March 2020. The company’ business is seasonal in nature and working capital tends to peak in the first half of the year, leading to negative cash from operations and increased dependence on its revolving credit facility, which will mature in less than a year.
While, working capital typically unwinds in the second half of the year, delays in orders or customer receivables, exacerbated by the coronavirus outbreak, will stretch working capital and temper cash flow generation. This in turn will likely require by the producer to fully draw down its revolving credit facility and eat into its cash cushion, putting further stress on its liquidity.
Pan Brothers has longstanding relationships with major global apparel retailers who have strong market positions and well recognized brand names, it is uncertain how the pressure from a severe drop in consumer spending will be distributed along the value chain of retailers, distributors and suppliers like Pan Brothers.
That said, Moody’s base case assumes that Pan Brothers’ revenue in 2020 will remain relatively flat, as the company’s ability to pivot its production to other revenue channels, such as the production of masks and medical jumpsuits, should offset expected declines in its fashion apparel sales.
However, higher debt levels as a result of increased working capital needs will weaken debt to EBITDA and EBITDA on interest expense to 5.1x and 1.9x respectively in 2020. The negative outlook reflects the refinancing risk associated with Pan Brothers‘ $138.5 million revolving credit facility.
Pan Brothers is the largest listed manufacturer of garment products in Indonesia, with a total production capacity of 90 million pieces of garments per year at 30 September 2019. The company employs around 38,000 people across 12 production facilities in west and central Java.
Edited by Staff Editor, Email: firstname.lastname@example.org