OREANDA-NEWS. Fitch Ratings believes global investment company KKR's investment in Indonesia's PT Japfa Comfeed Indonesia Tbk (Japfa, BB-/Negative) would help improve the company's leverage profile. Japfa, which is Indonesia's second-largest poultry feed and chicken producer by capacity, would also benefit from KKR's strategic insights gained from its investments in consumer product businesses in several countries.

Global investment firm KKR said on 8 June 2016 it will invest around USD81m in Japfa, in its first direct private-equity investment in Indonesia. The investment will provide KKR exposure to the growing poultry industry in the country. KKR will take a 10.44% stake: 6.57% via a private placement and 3.87% by buying shares from Japfa's parent.

The private placement would infuse around USD53m into Japfa, with KKR buying 750m new shares at IDR935.6 per share, in line with the recent share price. Japfa has convened an extraordinary general meeting of its shareholders on 1 July 2016 to approve a two-year mandate to increase the company's issued share capital by up to 10% at a floor price of IDR935.6 per share. After the deal, Japfa would still be able to issue a further 316m shares (worth USD22m) under the mandate.

Fitch sees robust long-term demand for poultry in Indonesia, driven by currently low per capita poultry consumption and accelerating GDP growth. Over the past year, market conditions and producer profitability have also improved significantly, following government directives to regulate supply and an uptick in demand growth. The industry culled around 3 million birds in 2015, after suffering from overcapacity in 2014. Chicken demand growth picked up to around 4% in 2015, from 1% in 2014, with higher public-sector spending and lower inflation. While risks remain, Fitch believes the government would keep poultry supply in check in the interest of small-scale farmers, which form a significant portion of the industry.

Japfa's leverage (net debt/EBITDA) declined to 2.6x in 2015 from 3.7x a year earlier as its margins improved in line with the industry fundamentals. We estimate that leverage would further reduce to around 2.3x in 2016-2017, helped by cash inflow from the private placement. However, Japfa faces significant debt maturities of over USD300m in 2017-2018 - IDR1.5trn of domestic rupiah bonds are due January and February 2017, and USD203m of dollar bonds are due in May 2018. Japfa is currently addressing the refinancing of its domestic bonds, but risks remain due to the lumpy maturity profile.