The ratings could be upgraded if Sritex maintains a stable financial profile over the next 18 months, with cash flows exceeding capital spending. In particular, debt/EBITDA levels below 3.5x and EBITA/interest expense above 3.5x on a sustained basis would be supportive of an upgrade.
Moody's Investors Service has affirmed the B1 corporate family rating (CFR) of P.T. Sri Rejeki Isman Tbk (Sritex) and the B1 rating on the $270 million senior unsecured notes due 2019 issued by Golden Legacy Pte. Ltd. and guaranteed by Sritex.
Moody's has also changed the ratings outlook to positive from stable.
Sritex is a vertically#
In addition, the company would also need to maintain its good liquidity profile, supported by high cash balances and committed bank facilities.
A near-term downgrade is unlikely, given the positive outlook. However, the outlook could return to stable if: (1) rising wages and other input costs reduce Sritex's cost competitiveness, such that EBITDA margins fall below 15 per cnt on a sustained basis, or (2) Sritex expands its business through debt-funded acquisitions or capital expenditures, such that debt/EBITDA exceeds 4.0x on a sustained basis, or (3) liquidity deteriorates due to either falling cash balances or a loss of access to its credit facilities.
A shift in Sritex's articulated financial policy -- such that the company expands its debt-funded capex programme -- would most likely also result in a return to a stable outlook. (SH)
ALCHEMPro News Desk – India
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