TEXT-Fitch affirms Bentoel's rupiah bond at 'AAA(idn)'

Mon Aug 27, 2012 3:18am EDT

Aug 27 - Fitch Ratings has affirmed PT Bentoel Internasional Investama Tbk's (Bentoel) IDR1.35tn senior unsecured notes due on 27 November 2012 at 'AAA(idn)'.

The rating reflects a full, irrevocable, and unconditional guarantee by Bentoel's 85.55% shareholder, British American Tobacco (BAT, 'BBB+'/Stable). BAT is rated two notches above Indonesia's Long-Term Local Currency Issuer Default Rating of 'BBB-' which has a Stable Outlook.

BAT's rating reflects its superior geographical diversity, substantial cash flow from operations, and low leverage for a 'BBB+' rating. The company's rating also reflects increasing regulatory pressure on tobacco companies and products in less-regulated emerging markets, and compression in free cash flow due to a generous dividend policy.

Bentoel intends to fully refinance the notes maturing on 27 November 2012 with bank loans. They are currently at the final stage of loan documentation, and management expects to finalise the transaction by end-August 2012.

Bentoel is currently the fourth largest cigarette manufacturer in Indonesia by market share. In H112, Bentoel reported negative EBITDA of IDR83bn, the first time in the last five years, as a result of lower sales volume (down 13% yoy), higher clove prices in 2011 (up 30%-40% yoy), and higher marketing investment (up 23% yoy).

What could trigger a rating action?

Negative: Future developments that may, individually or collectively, lead to negative rating

action include:

- Any rating actions that result in BAT's rating falling below Indonesia's sovereign rating would put negative pressure on the rating of Bentoel's notes.

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