Fitch Affirms Berlina at 'A-(idn)'; Outlook Stable
'A' National Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment to a greater degree than is the case for financial commitments denoted by a higher rated category.
KEY RATING DRIVERS
Leading Position in Indonesia: Berlina's rating reflects the company's business as the second-largest plastic packaging manufacturer with an estimated 20%-25% market share and the largest tube manufacturer with about 80% market share by capacity in Indonesia. Berlina has over 40 years of experience in the industry. The group's performance benefits from the young and rising population and growing consumption in Indonesia. Berlina's customers include those from the fast moving consumer goods (FMCG), cosmetics, automotive, and food and beverage industries.
Established Relationship with Unilever: The company has a well-established relationship with its key customer, the Unilever group (Unilever NV and Unilever PLC, both rated 'A+'/Stable) since 1971. The group contributed 43% and 58% to Berlina's sales in 2015 and 1H16 respectively. Fitch views Berlina's relationship with Unilever as a positive factor due to Unilever's creditworthiness and dominant position in Indonesia's FMCG industry. Revenue contribution from Unilever fell from its historical level of over 60% due to slowing growth in Unilever's China-based entity and increasing contributions from Berlina's new business lines. Fitch expects Berlina to continue supplying plastic packaging to Unilever, although management has expressed that it plans to reduce its reliance on Unilever by boosting contributions from other product segments.
Cost Pass-Through Contracts: Berlina's contracts with customers provide relatively stable margins and cash flows from cost pass-through clauses, which mitigate the company's exposure to the fluctuating costs of raw materials through the cycle. The contracts allow for price adjustments every three to six months.
IDR220bn Rights Issue: Berlina plans to raise IDR220bn via a rights issue later this year, and has secured parent PT Dwi Satrya Utama as the standby buyer. The capital raising will be used to help fund the company's capex, which is set to peak at around IDR220bn in 2016. Should the rights issue not be taken up by shareholders and the company turns to debt markets, leverage will nonetheless remain within the levels expected for Berlina's rating.
MTN Refinancing: The company plans to recall its IDR200bn 13.5% medium-term notes (MTN) issued in 2014 in order to reduce its interest cost. The refinancing is expected to take place in early October.
Fitch's key assumptions within our rating case for the issuer include:
- Gradual improvement in EBITDA margin to 16%-17%
- Capex around IDR220bn in 2016, before decreasing to IDR120bn in 2017 and IDR130bn in 2018
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Net debt/EBITDA increase to above 3.0x (2015: 2.8x) on a sustained basis
- Deterioration in EBITDA margin to below 14% (2015: 15.7%) on a sustained basis
Positive rating action is not expected over the medium term, due to Berlina's small operating scale.