(The following was released by the rating agency) JAKARTA/SINGAPORE, June 12 (Fitch) Fitch Ratings has upgraded PT Aneka Gas Industri's (AGI) National Long-Term rating to 'A-(idn)' from 'BBB(idn)'. The Outlook is Stable. At the same time, AGI's IDR80bn bond I and IDR160bn Islamic bond I, both due in July 2013, have also been upgraded to 'A-(idn)' from 'BBB(idn)'.
The upgrade reflects Fitch's view that AGI's capex plans will be completed on a timely basis, with limited execution risk. This is based on the fact the capex is progressing as scheduled with no significant cost overruns. The upgrade also takes into account that its leverage - as measured by net debt/EBITDA - has remained below 3x, the threshold for a rating upgrade to 'A-(idn)', on a sustained basis. Leverage at FYE11 was 2.5x, little changed from FYE10's 2.6x.
The Stable Outlook reflects Fitch's expectation that AGI will maintain strong credit metrics while undertaking the capacity expansion. Upon the completion of capex in 2013, Fitch expects AGI's profitability to improve with efficiency gains and higher margins at its retail business while maintaining comfortable leverage. AGI expects to incur additional capex of around IDR574bn between 2012 and 2013, of which 58% is to be funded by long-term bank loans. Fitch notes that IDR330bn of available long-term loans and planned additional IDR65bn capital injection from majority shareholder, PT Aneka Mega Energy, in H212 should lend comfort to AGI's liquidity position.
AGI is investing in three new air separation plants in Gresik, Batam and Makassar and its first CO2 plant in Subang. It expects to start commercial operation of the Gresik and Subang plants in H212. All four new plants will boost annual production of oxygen and nitrogen by around 60,000 and 90,000 metric cubic, respectively, of which around 50% has already been contracted for sale on a long-term basis.
The ratings also reflect AGI's acceptable liquidity position with short-term debt of IDR150bn against IDR96bn of cash and IDR26bn undrawn facilities at FYE11. Fitch expects AGI to repay its IDR160bn and IDR80bn 2013 bonds with internal cashflows derived from its existing and new plants.
AGI's improving scale and widespread distribution network help support its favourable cost structure and strong pricing power. The company commands a 90% share and a 20% share of Indonesia's medical and industrial gases markets, respectively.
Negative rating action may result from AGI's leverage rising to 3x on a sustained basis, or from unexpected delays to or cost overruns of its capex plans. Conversely, positive rating action may be taken if leverage falls below 2.5x and EBITDA margins rise above 30% (2011: 27%) on a sustained basis.