Fitch Ratings announce that PT Arpeni Pratama Ocean Line Tbk's (Arpeni) ratings will be downgraded to 'RD' if its recently missed US$ coupon is not paid before the expiry of the 30-day grace period.
Given its extremely weak liquidity position, Arpeni failed to pay the US$6 million coupon on the US$ notes due on 3 May 2010. The company had previously failed to pay a coupon due on 3 December 2009, but avoided a default by rectifying this within the grace period.
Given its extremely weak liquidity position, Arpeni failed to pay the US$6 million coupon on the US$ notes due on 3 May 2010. The company had previously failed to pay a coupon due on 3 December 2009, but avoided a default by rectifying this within the grace period.
Arpeni's financial profile has deteriorated significantly due to high accounts receivables, crystallisation of significant derivative liabilities, nearly US$25m of cash reserves being pledged as collateral for related-party bank debt obligations and its weaker operating earnings.
The company had only around US$12m of unrestricted cash reserves at 31 December 2009. Fitch understands that Arpeni's cash balances have not improved materially since year-end.
"The internal cash generation rate at Arpeni does not provide much comfort regarding its ability to rectify the coupon default within the grace period," notes Buddhika Piyasena, Director with Fitch's Corporate Ratings team.
"The internal cash generation rate at Arpeni does not provide much comfort regarding its ability to rectify the coupon default within the grace period," notes Buddhika Piyasena, Director with Fitch's Corporate Ratings team.
The agency believes that Arpeni will have to make further provisions for unrecoverable trade receivables over and above the IDR 85 billion made in 2009. The company is prioritising payments to trade suppliers to ensure the continuity of its business operations.
"At this time, it does not appear that the company has any back-stop available for the payment of the coupon if its cash balances do not improve before the grace period expires on 2 June 2010," adds Mr. Piyasena.
A standstill on principal payments on secured bank debt and other debt obligations is still in effect, but on an informal basis. Arpeni intends to raise additional capital before negotiating a formal long-term plan with its creditors. The company is making some progress with finding investors to improve its capital position and liquidity, though given the complexity of Arpeni's situation, Fitch expects this process to take some time.
A standstill on principal payments on secured bank debt and other debt obligations is still in effect, but on an informal basis. Arpeni intends to raise additional capital before negotiating a formal long-term plan with its creditors. The company is making some progress with finding investors to improve its capital position and liquidity, though given the complexity of Arpeni's situation, Fitch expects this process to take some time.
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