CP Prima results show weakening liquidity position

Fitch Ratings has commented today that PT Central Proteinaprima Tbk's results demonstrated a weakening liquidity position with cash balance falling to IDR189 billion at end September-2009 from IDR318bn at end-June 2009.

CP Prima also reported an EBITDA of negative IDR7.9 billion in Q3 2009, as compared with IDR 27.8 billion in Q2 2009 and IDR 255.1bn in Q1 2009. Fitch believes that the EBITDA loss was a result of the continued virus contamination of its ponds, which leads to weak shrimp production.

The subsequent poor performance poses a challenge to the company when it renews its working capital facilities since its interest coverage, as measured by EBITDA/gross interest expense, deteriorated to 0.8x in 9M 2009.

Some of its banks have agreed to renew its maturing working capital facilities in Q309 by up to one year. However, a total USD40.3 million equivalent in outstanding working capital loans had not been renewed by PT Bank Negara Indonesia Tbk (BNI) at the time of CP Prima results announcement, although the loans matured in September 2009.

In Fitch's view, the company's ability to renew these facilities will be critical to its liquidity position. In addition, the company's restricted cash balance in the interest reserve account for the payment of coupons on its US$ 325 million notes was only US$1.6m, which is well below the notes' minimum requirement of at least one semi-annual interest payment at any time. The next coupon payment of USD17.9m is due on 28 December 2009. Fitch, however, notes that the underfunded reserve account does not constitute an event of default.

Fitch will continue to monitor the situation, focusing in particular on CPP's working capital line renewals and the situation with regards to the virus contamination. Further negative rating action may be taken if CP Prima maturing working capital lines are not renewed and/or the virus contamination does not show signs of improvement in Q4 2009.

Founded in 1980 by the Charoen Pokphand Group (CPG), a conglomerate engaged in agro-industrial and aquaculture businesses in Thailand, CP Prima is one of the world's largest shrimp producers and processors. The Jiaravanon family, which is the controlling shareholder of CPG, has a majority beneficial interest in the company. In the nine months ending September 2009, CPP booked revenue of IDR5,182 billion and EBITDA of IDR 275 billion.