S&P assigns B-plus to PT Polytama

JAKARTA (JP): Standard & Poor (S&P) rating agency has assigned a B-plus corporate rating to PT Polytama Propindo and a B+ long term rating to the US$200 million senior-secured notes issued by Polytama's subsidiary Polytama International Finance.

S&P said the rating outlook was stable.

The ratings reflected Polytama's aggressive debt usage and growth strategy, plus the vulnerability of its feedstock supply and concern over the possibility of oversupply in the region, S&P said.

It said Polytama had an aggressive financial policy, characterized by weak cash flow protection and high debt usage.

"Pro-forma pretax interest coverage is 1.9 times and total debt to capital is 88.6 percent," it said.

Polytama benefited from low feedstock costs under the propylene supply contract with BP Chemical.

BP Chemical had a contract with state oil company Pertamina, which made the Polytama vulnerable to feedstock supply.

"This could be recently observed in the recent production stoppage caused by Pertamina's unscheduled facility shutdown," it said.

But these shortcomings would be countered by prospects for "continued double-digit growth in the Southeast Asian polypropylene market as well as the company's advantageous cost position", it said.

But the Asian polypropylene market would probably suffer from oversupply because petrochemical companies were aggressive in their capacity expansions, it said.

Polytama is one of Indonesia's two main polypropylene makers. Polypropylene is used in wrapping films, woven sacks and molded plastic.

Last year, the company made 180,000 tons of polypropylene worth Rp 279 billion (US$114.81 million).

The company is 80 percent owned by PT Tirtamas Majutama, whose owners include members of President Soeharto's family.

S&P said of the US$200 million raised from the notes, $140 million would be to restructure debt, while the remaining $60 million would be used to build a new manufacturing facility.

PT Tirtamas will own 70 percent of the new facility.

The new facility will be completed in 1999 and increase the company's capacity to 380,000 tons. (das)