JAKARTA (TheInsiderStories) – Fertilizer producer, PT Pupuk Indonesia optimistic to raises Rp2.5 trillion (US$178.57 million) from the domestic bond market, said the management last week. The notes with three, five, and seven years of tenure will register to Financial Service Agency in this month and public offering will conduct on March.
According to the director of finance and investment, Eko Taufik Wibowo, the proceeds from the bond issuances will use to refinance the company debts. Fitch Ratings 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. It said, the factor affecting this rating is because the company is fully owned by the government, so the government has a strong influence on the company’s investment, strategic and operational decisions.
Sales of Pupuk Indonesia, 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, the producer 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 company 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.
Pupuk Indonesia 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 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 manufacturer became an investment and strategic holding on April 3, 2012 after established since 1959 with initial brand PT Pupuk Sriwidjaja.
Pupuk Indonesia 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.
Throughout 2020, said Wibowo, total sales volume for both fertilizer and non-fertilizer products reached 14.4 million tones, an increase compared to 2019 of 13.7 million tones. Fertilizer production recorded 12.26 million tones, which is the highest production record.
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