Fitch Places PT Saratoga on Rating Watch Negative
The Rating Watch Negative reflects Fitch's review to set new key rating metrics for Saratoga and map these to individual ratings on the Indonesian National scale. The review may result in the ratings being affirmed or downgraded. We expect to complete the review by mid-November 2015.
The review of metrics is required because the company's business model is unique in Fitch's portfolio of Indonesian ratings, and rare in our international rating portfolio. The company invests for long-term capital gains and does not expect dividends from its investments to meet interest obligations on its debt. The company regards selling down stakes in its investments to meet interest obligations as a natural part of its business model.
'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
Portfolio Composition Developing: The company's management aims to gradually monetise its more mature investments and invest in early-stage or growth companies. This could offer higher returns, but may be more risky. However, we acknowledge that management has had a track record of successful investments, including in listed blue chips PT Adaro Energy Tbk (Adaro) and PT Tower Bersama Infrastructure Tbk (TBI, BB/Stable), which account for 71% of Saratoga's portfolio investment.
Adequate Liquidity: Cash at 30 June 2015 was USD82m, more than sufficient to meet USD31m of debt maturing in 2016, unless it undertakes further investments. The company may sell some of its investments, which could improve liquidity.
Debt Maturities Extended: In May 2015, Saratoga issued a USD100m five-year exchangeable bond with put option at year three. Of this, about USD20m was used to refinance debt. Annual debt maturities currently do not exceed USD70m until 2017.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for the issuer include:
- Investment of about IDR800bn per year
- Dividend income of about IDR100bn-130bn per year
- Holding company expenses of about IDR100bn in 2015 and increasing by 5% per year afer that
RATING SENSITIVITIES
The Rating Watch Negative will be resolved upon completion of Fitch's review, which will determine more granular threshold levels on the National Rating scale for an entity with this type of operational profile.
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