(The following statement was released by the rating agency)
Dec 27 -
-- Gajah Tunggal's refinancing initiative will improve its debt maturity
-- We also expect the Indonesia-based tire manufacturer to sustain our
"aggressive" financial risk profile over the next two years.
-- We are placing our 'B' long-term corporate credit rating and 'axBB-'
ASEAN regional scale rating on Gajah Tunggal on CreditWatch with positive
-- We are also placing our 'B' issue rating on Gajah Tunggal's guaranteed
secured notes on CreditWatch with positive implications.
On Dec. 27, 2012, Standard & Poor's Ratings Services placed its 'B' long-term
corporate credit rating on Indonesia-based tire manufacturer PT Gajah Tunggal
Tbk. on CreditWatch with positive implications. At the same time, we placed
our 'axBB-' ASEAN regional scale rating on the company and our 'B' issue
rating on Gajah Tunggal's guaranteed secured notes on CreditWatch with
The CreditWatch placement reflects our view that Gajah Tunggal's proposed
refinancing of US$412.5 million in outstanding bonds due by 2014 will improve
its debt maturity profile and reduce its refinancing risk. The company expects
to refinance them with a senior unsecured bond issue of up to US$500 million.
After refinancing, Gajah Tunggal's capital structure will only consist of a
five-year senior unsecured bond maturing in 2018. We expect the company to
obtain shareholder approval for the refinancing during its Jan. 14, 2013,
extraordinary shareholder meeting, and the transaction to close by the end of
With Gajah Tunggal's refinancing initiative, we now have more visibility on
the company's refinancing risk, capital spending program, and strategy. We
believe the company's financial risk profile will become more sustainable over
the next two years. We project its ratio of funds from operations (FFO) to
debt at 15%-20% over the period, with a debt-to-EBITDA ratio at 2.5x-3.5x. We
expect moderate revenue growth in 2013 and 2014 to support the company's cash
flows, despite a potential softening of operating margin and a capital
spending plan that is moderately higher than we had earlier anticipated. These
ratios would result in an improvement in Gajah Tunggal's financial risk
profile to our "aggressive" category, compared with our previous assessment of
a "highly leveraged" financial risk category.
The rating on Gajah Tunggal reflects the company's "weak" business risk
profile and its "aggressive" financial risk profile. Gajah Tunggal has an
aggressive capital structure and exposure to the cyclical and competitive tire
manufacturing industry, with volatile raw material prices. Nevertheless, the
company's low cost position and strong share in the Indonesian tire market
temper these weaknesses.
We expect to resolve the CreditWatch status when Gajah Tunggal's refinancing
initiative closes, which we expect by the end of January 2013.
We may raise the rating on Gajah Tunggal by one notch to 'B+' after the
On the other hand, we may affirm the rating and revise the outlook to stable
if Gajah Tunggal postpones or cancels its bond refinancing initiative, or if
the amount raised by the company is larger than the US$500 million we have
incorporated in our base-case assumptions.
Related Criteria And Research
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18,
-- PT Gajah Tunggal Tbk. Outlook Revised To Positive On Expectation Of
Stronger Financial Profile; 'B' Rating Affirmed, May 8, 2012
-- Business And Financial Risks In The Auto Component Suppliers Industry,
Jan. 28, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
Ratings Affirmed; CreditWatch/Outlook Action
PT Gajah Tunggal Tbk.
Corporate Credit Rating B/Watch Pos/-- B/Positive/--
ASEAN Rating Scale axBB-/Watch Pos/-- axBB-/--/--
GT2005 Bonds B.V.
Senior Secured B/Watch Pos B