Moody’s Investor Service has raised the debt rating of Chandra Asri Petrochemical Tbk (TPIA) from B1 to Ba3 with a stable outlook. The rating upgrade is reflecting the sustainable improvement in its margins, cash position, liquidity profile, and corporate leverage since the completion of the naphtha cracker plant expansion at the end of 2015.
Brian Grieser, VP and Senior Credit Officer of the Corporate Finance Group at Moody’s, said the naphtha cracker expansion increased the production capacity of ethylene and propylene to 900 kilotons per annum (KTA) and 490 KTA, respectively. This will strengthen the margin and cash flow as the petrochemical industry declines. TPIA is expected to maintain EBITDA margin at a level of 20 percent in the next 12 to 24 months.
“The Ba3 rating reflects improvements in balance sheet, especially with lower cash and debt levels. If combined with EBITDA improvements, the company’s leverage will have lowered to below 1.0x,” said Grieser. The company has USD 278 million as of March 31, 2017.
TPIA has a number of projects requiring a capital expenditure of USD 1 billion over the next three years, including expansion of butadiene plant, additional capacity of polypropylene plant, naphtha cracker furnace revamp, new polyethylene plant, MTBE and Butene plant, and the feasibility study for the second naphtha cracker development.
Construction of the second naphtha cracker could cost USD 4 billion to USD 5 billion and will add significant execution risk in the next five years. “Moody’s hopes that investment decisions on this project will be financed with caution and involve strong joint venture partners to reduce risk exposure,” said Grieser. The rights issue proceeds are estimated at IDR 6.15 trillion and cash flows are expected to cover capex and dividend payments in the next three years. (*)