Gajah Tunggal Cut by S&PGR as $500m Bond Refinancing Risk Rises

S&PGR cuts the Indonesia-based tire maker’s long-term credit rating by one step to CCC, citing significant milestones for refinancing of $500m notes maturing Feb. 6.

“Although we understand that Gajah Tunggal is currently working toward addressing those maturities, we believe the process could take a few months more,” the ratings firm said in a statement.

The success of a new note placement will be increasingly dependent on favorable market conditions as the maturity draws closer, S&PGR credit analyst Eric Nietsch says in the statement.

Catharina Widjaja, a director in Jakarta, was in a meeting and not immediately available to comment on the refinancing, her assistant said by phone.

S&PGR may downgrade company again if notes not refinanced by end of third quarter, or if it undertakes transactions related to 2018 notes constituting a distressed exchange, including purchases below initial promise.

S&PGR also lowered rating on company’s senior secured notes one level to CCC.

NOTE: Gajah Tunggal is working hard to refinance dollar bonds due in February 2018 and aiming to achieve a total solution by first half of 2017, according to emailed comments from Widjaja in February.

“The problem with Gajah Tunggal is the bulk of their debt, namely the $500m note, is maturing next February,” said Charles Macgregor, head of emerging markets at Lucror Analytics in Singapore. “It is problematic for a company of their size to get this much away at one time”.

“The company is now exposed to event risk should something happen to disturb emerging markets before they complete the refinancing”.

The $500m bonds have risen 8 cents on the dollar this year to 94.8 cents as of 10:52am in Hong Kong, according to Bloomberg-compiled price.

Earlier story

– Gajah Tunggal swings from loss to IDR626.56b net income in 2016.

– Gajah Tunggal bonds drop most in 12 weeks after rating cut.

Bloomberg News
April 26, 2017, 02:55:30 GMT

Reporting by Lianting Tu, with assistance from David Yong; Editing by Neha D'Silva and Finbarr Flynn