CP Prima, road to default ???

Moody's Investors Service has downgraded to B2 from B1 PT Central Proteinaprima's (CPP) corporate family rating and senior unsecured bond rating. At the same time, PT Moody's Indonesia has downgraded CPP's national scale issuer rating to Baa2.id from A3.id.The ratings are under review for further possible downgrade.
Moreover, the company may breach some of its financial covenants on certain short-term bank loans in its FY08 financials. In the event of this happening, the risk of trigging a cross-default is rising, given its low cash-to-short-term debt coverage -- cash of Rp253 bn and short-termdebt of Rp1,000 bn as of September 2008. The depreciation of rupiah exchange rate made the debt to equity ratio (DER) of CP Prima went beyond the debt covenant which might cause default.
In anticipation, the company will have rights issue to take over the subordination debt of PT Surya Hidup Satwa (SHS) into equity. The soft loan will mature on 1 October 2014.
Three banks with possible violation of debt covenant due to the depreciation of rupiah include PT CIMB Niaga Tbk (CIMB), PT Bank Ekspor Indonesia (BEI), and Hongkong Shanghai Bank of China (HSBC).
The long term contract is the agreement to protect the creditor from default including the falling equity under the tolerable level.
CIMB Niaga disbursed US$10 million loan and IDX provides export working capital credit worth IDR100 billion plus letter of credit (L/C) facility worth US$10 million. Consequently, they impose DER by 3.5 times.
HSBC also provides US$20 million loan facility with the obligation of DER by 2.5 times.
Furthermore, around 50-60% of its revenue from the sale of frozen shrimp comes from US, a market which is likely to shrink over the next 12-18 months in view of the economic downturn.
On the other hand, the ratings continue to reflect the company'swell-established and integrated production facilities and its leadingpositions in the shrimp export market and Indonesia's shrimp / fish feedindustry, with full traceability for its frozen shrimp products.