S&P puts Sritex on watch

S&P said it placed PT Sri Rejeki Isman Tbk.’s (Sritex) BB- long-term corporate credit rating on CreditWatch with negative implications.

The agency also said it placed the company’s axBB long-term Asean regional scale rating and the BB- long-term issue ratings on its guaranteed senior unsecured notes on CreditWatch with negative implications.

The ratings were placed on negative watch due to the credit implications for Sritex from the completion of a rayon plant by a related company, S&P explained.

PT Rayon Utama Makmur is completing construction of an 80,000 ton rayon plant in Indonesia, the agency said. Estimated costs of the plant are $250 million, which is funded with debt, the agency said.

S&P said it believes Sritex will be an off-taker of the plant when it starts operations, but the agency hasn’t been able to obtain visibility on any additional customers, production ramp-up and ultimately the economic viability and profitability of the venture.

The combination of substantial debt and likely operational linkage should the plant become a strategic supplier of raw material to Sritex could translate into rising event risk at Sritex, the agency said.

Given that both companies have a common ultimate majority ownership, S&P said it believes Sritex may have an incentive to support Rayon Utama within the bounds of its debt covenants.

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