JAKARTA (TheInsiderStories) – The producer of fertilizer, PT Pupuk Indonesia offered the domestic bond up to Rp2.5 trillion (US$178.57 million) for debt refinancing, Fitch Ratings reported today. This bond is part of the company’ shelf registration bond with a total ceiling of Rp8 trillion.
The agency has assigned an AAA rating for the notes, represent the highest rating given by Fitch for Indonesian company with a relative low expected risk of default. They assessed that the Indonesian government’ support for the issuer was very strong.
Pupuk Indonesia regularly receives fertilizer subsidy. The allocation in the 2021 State Budget worth of Rp25.3 trillion for 8.2 million tones or around 14.4 percent of total subsidies. In addition, food security is also one of the government’ priorities in this year, with a budget allocation of Rp99 trillion, an increase of more than 20 percent from 2020.
According to Fitch, sales of subsidized fertilizers, including subsidized income, contribute more than half of the company’ total income. Fitch does not expect any changes to the subsidy scheme.
The rating agency also sees Pupuk Indonesia‘ free cash flow has the potential to be depressed as its capital expenditure can reach its highest point in 2022 and 2023 of around Rp 10 trillion. The funds will be used to finance large-scale projects in several subsidiaries. The capital expenditure funded by this loan is expected to increase net debt to EBITDA to more than 3.5 times in these years.
The producer is estimated to have free cash flow that will improve to Rp7 trillion in 2020, from Rp3 trillion in 2019, due to falling capital expenditures and cash inflows from working capital. The company has reduced the spending during the COVID-19 pandemic, and only spent around Rp1.8 trillion until the third quarter of 2020 compared to the same period of prior year of Rp3.2 trillion.
Fitch estimates Pupuk Indonesia‘ revenues growth will improve around 3 percent in the medium term. The state-owned firm’ performance will be supported by the volume growth of non-subsidized fertilizers, which previously was quite stagnant in 2020 due to the pandemic, adds by the report.
The company became an investment and strategic holding on April 3, 2012 after established since 1959 with initial brand PT Pupuk Sriwidjaja. The manufacturer oversees PT Petrokimia Gresik, PT Pupuk Kujang, PT Pupuk Kalimantan Timur, PT Pupuk Iskandar Muda, PT Pupuk Sriwidjaja Palembang, PT Rekayasa Industri, PT Mega Eltra, PT Pupuk Indonesia Logistik, PT Pupuk Indonesia Energi, and PT Pupuk Indonesia Food.
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