JAKARTA (TheInsiderStories) - Moody’s Investors Service (Moody’s) has assigned a definitive B1 rating to the proposed $150 million senior notes due 2024, issued by Golden Legacy Pte Ltd and unconditionally and irrevocably guaranteed by PT Sri Rejeki Isman Tbk (B1 stable).
Sritex will use all of the net proceeds towards repaying existing debt, including its $89.3 million senior unsecured notes due 2019 (B1), $30 million of medium term notes due October 2017 and existing working capital loans. The proposed notes will be equal in ranking with the existing $350 million notes due 2021 (B1).
Ratings Rationale
“The successful completion of Sritex tender offer and notes issuance will extend its debt maturity profile, with the company’s next major maturity
of $350 million coming due only in 2021,” Brian Grieser, a Moody’s Vice President and Senior Analyst said in a statement.
Sritex’s B1 corporate family rating reflects its: (1) solid EBITDA margins, approaching 20%; (2) track record of revenue and earnings growth; (3) completion of its large, debt-funded capital spending program on time and on budget in 2016; (4) customer and geographic sales diversification; (4) debt-to-EBITDA of 4.2x at 30 December 2016 and (5) solid liquidity profile.
The positive outlook reflects Moody’s expectation that Sritex’s earnings will benefit from strong demand for its textile and garment products in 2017, and that garment sales will represent a greater proportion of Sritex sales; thereby supporting margin expansion. Further, the positive outlook anticipates improved earnings and lower capital spending supporting positive free cash flow in 2017, Moody’s said.
The ratings could be upgraded within the next 12 months if Sritex maintains its stable operating and financial profile, with cash flows from operations exceeding capital spending. In particular, debt-to-EBITDA levels approaching 3.5x and EBITA-to-interest expense of 3.5x would be supportive of an upgrade. The company would also need to maintain its good liquidity profile, supported by high cash balances and committed bank facilities.
A near-term downgrade of the ratings is unlikely, given the positive outlook. However, the outlook could return to stable if any of the following occur: (1) Rising wages and other input costs reduce Sritex’s cost competitiveness, such that its EBITDA margins fall below 15% on a sustained basis; (2) Sritex expands its business through debt-funded acquisitions or capital expenditures, such that debt-to-EBITDA exceeds 4.0x on a sustained basis; (3) Related-party transactions weigh on margins or weaken cash flow prospects; or (4) Liquidity deteriorates due to either falling cash balances or a loss of access to its credit facilities.
Sritex, located in central Java, Indonesia, is a vertically integrated manufacturer of textiles and textile products. Its operations are spread across 25 factories, consisting of nine spinning plants, three weaving plants, five finishing plants and eight garment plants. Net revenues generated by its four divisions totaled approximately $499 million for nine months ending 30 September 2016. (*)