Fitch Ratings has today assigned PT Titan Petrokimia Nusantara an A+(idn) national long-term rating. The outlook is stable. The agency has also assigned expected ratings of A+(idn) to Titan Petrokimia proposed senior unsecured notes (Bond I/2010 and Islamic Bond I/2010) maturing in five years from the issue date.
The notes' ratings are based on the indicative issue size and tenor communicated to Fitch by Titan Petrokimia Nusantara. Any material deviations from these may result in a negative rating action. The final rating is contingent upon received of final document confirming to information already received.
Titan Petrokimia Nusantara national long-term rating incorporates an uplift of two notches from its stand-alone rating given the operational links with, ownership and management control by its ultimate parent, Malaysia's Titan Chemicals Corp. Bhd. (Titan Chemicals), which has a 90.4% beneficial ownership in the company.
In 2009, Titan Petrokimia Nusantara's contribution to its parent's consolidated EBITDA generation increased to about 20%, from about 7% in 2007.
Titan Petrokimia Nusantara's stand-alone credit quality reflects its entrenched position in the Indonesian polyethylene (PE) market. In 2009, it had an estimated share of 30% of total domestic demand.
Titan Petrokimia Nusantara's stand-alone credit quality reflects its entrenched position in the Indonesian polyethylene (PE) market. In 2009, it had an estimated share of 30% of total domestic demand.
Titan Petrokimia Nusantara's market share has increased - from 8% in 2005 - by taking portion of import product and Fitch expects its share to increase further as Indonesia remains a net importer of PE with no major capacity expansion planned in the short term.
The company position as a domestic producer gives it cost competitiveness and shorter lead times than imported PE, although the agency notes that low-cost production capacity additions coming on stream in the Middle East over 2010-2011 could put some pressure on margins.
The stand-alone rating is also supported by the improvement of the plant utilisation rate to about 65% in 2009 (2006: 25%). This, coupled with the higher margin spread between ethylene and PE, means the company has been able to recover quickly from its poor financial performance in Q408 (a result of unprecedented drop in PE and ethylene prices). In 2009, The company registered revenues of US$379.9 million and EBITDA of US$51.1 million as compared to revenues of US$402.9m and EBITDA of US$6.5 million in 2008. Its financial leverage, as measured by adjusted net debt to EBITDAR, improved to 0.7x (2008: 12.6x).
The rating is constrained by the cyclicality of the petrochemical industry, which may result in volatility in margins and cash flow generation. Fitch expects competition to increase due to significant low-cost production capacity coming on stream in the Middle East. Although this new capacity will largely focus on export to China, the commodity nature of Titan Petrokimia Nusantara product means that its margins could come under pressure until global demand grows sufficiently to absorb the increasing supply.
The stand-alone rating is also supported by the improvement of the plant utilisation rate to about 65% in 2009 (2006: 25%). This, coupled with the higher margin spread between ethylene and PE, means the company has been able to recover quickly from its poor financial performance in Q408 (a result of unprecedented drop in PE and ethylene prices). In 2009, The company registered revenues of US$379.9 million and EBITDA of US$51.1 million as compared to revenues of US$402.9m and EBITDA of US$6.5 million in 2008. Its financial leverage, as measured by adjusted net debt to EBITDAR, improved to 0.7x (2008: 12.6x).
The rating is constrained by the cyclicality of the petrochemical industry, which may result in volatility in margins and cash flow generation. Fitch expects competition to increase due to significant low-cost production capacity coming on stream in the Middle East. Although this new capacity will largely focus on export to China, the commodity nature of Titan Petrokimia Nusantara product means that its margins could come under pressure until global demand grows sufficiently to absorb the increasing supply.
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