Moody’s upgrades Gajah Tunggal to B2; outlook stable

Photo by GT=Tires

Singapore, August 24, 2017 — Moody’s Investors Service has upgraded the corporate family rating (CFR) of Gajah Tunggal Tbk (P.T.) to B2 from Caa1 following the successful issuance of $250 million of senior secured notes due 2022 and a committed five-year $250 million senior secured loan facility, the proceeds of which are earmarked to refinance the $500 million notes maturing in February 2018.

At the same time, Moody’s has upgraded the ratings on the $250 million senior secured notes due August 2022 and the $500 million senior secured notes due February 2018 to B2 from Caa1. The outlook on the ratings is stable. This action concludes the review for upgrade initiated on 31 July 2017.


“The upgrade of Gajah Tunggal’s ratings reflects the significant improvement in its capital structure and debt maturity profile following the successful refinancing of its 2018 notes,” says Brian Grieser, a Moody’s Vice President and Senior Credit Officer.

On 11 August 2017, Gajah Tunggal issued a notice of redemption to redeem the outstanding $500 million senior secured notes on 11 September 2017 with proceeds from the recent notes issuance and loan facility.

Gajah Tunggal’s B2 CFR reflects its leading position in the Indonesian motorcycle tire market, balanced product mix between radial, bias and motorcycle tires, and improving geographic diversification of sales.

Further, the rating reflects Gajah Tunggal’s improved capital structure and solid credit metrics, with Moody’s adjusted debt-to-EBITDA of 3.7x and EBIT-to-interest of 2.0x for the 12 months ended 31 March 2017.

The rating also incorporates Moody’s expectation for some moderation in Gajah Tunggal’s profitability and cash flows given its growth in export sales, which result in higher transportation costs and working capital days, as well as its exposure to volatility in rubber and synthetic rubber prices as its key raw material.

Gajah Tunggal will rely on its short-term working capital facilities over the next 12 months. However, its cash balances, combined with ongoing cash generation, will be adequate to cover the higher service requirements associated with the secured term loan facility and new notes.

The B2 rating on the $500 million senior secured notes will be withdrawn upon repayment on 11 September 2017.

The ratings could be further upgraded if Gajah Tunggal continues to grow its revenue base while maintaining EBITDA margins at or around 20%, generating positive free cash flow and reducing debt levels. Further, a ratings upgrade would require Gajah Tunggal to maintain its debt-to-EBITDA around 3.25x.

The ratings could be downgraded if margins decline due to increased raw material or transportation and logistics costs, such that EBITDA margins fall below 15% on a sustained basis. Further, a deterioration in liquidity, either due to declining cash balances or a failure to meet covenant requirements, and/or debt-to-EBITDA over 4.5x could lead to a

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 of tire cord and 75,000 tons of synthetic rubber per year for both internal consumption and third party sales.

Gajah Tunggal’s key shareholders include Denham Pte Ltd (49.5%), a subsidiary of Chinese Tire Manufacturer Giti Tire Pte Ltd, and Compagnie Financiere Michelin SCmA (10%, A3 stable). The remaining shares are publicly traded on the Indonesian Stock Exchange