20231016_PBRX_Laporan Informasi dan Fakta Material_31459120_lamp2.pdf

10/16/23, 11:47 AM                                                Fitch Downgrades Pan Brothers to 'C'/'C(idn)'

Limited Liquidity and Financial Flexibility: Fitch estimates that Pan Brothers' liquidity
and financial flexibility will remain tight without the extension of syndicated loan
maturities and additional working-capital facilities. The facilities are necessary due to
the high working-capital requirements of its garment business. Liquidity pressure is
exacerbated by its sustained negative cash flow from operations and maintenance capex
requirements.


Declining Revenue: We expect revenue will decline by around 5% in 2023 due to
weaker customer demand, with a modest recovery in 2024. Fitch forecasts the EBITDA
margin will remain at around 8% due to rising wage pressure.


ESG - Management Strategy: Improvement in its cash generation is dependent on Pan
Brothers' strategy development and implementation in terms of working-capital and
debt-maturity management. Its debt repayment and refinancing capacity relies on its
ability to attract new bank lenders beyond its previous and current lenders, or finding
alternative sources of funding.


DERIVATION SUMMARY

The rating reflects the cure period that Pan Brothers has entered into following the non-
payment of its syndicated loan amortisation on 27 September 2023.

KEY ASSUMPTIONS

Fitch's Key Assumptions Within Our Rating Case for the Issuer:


- Revenue to drop by 5% in 2023. Low single-digit growth in 2024 as demand recovers.


- Stable EBITDA margin of around 8% in 2023 and 2024 on the company's cost-plus
margin model.


- Capex of around USD4 million in 2023 in the absence of capacity expansion. Capex will
double in 2024 as the company invests in capacity growth.


- No dividend payments in 2023-2024.


KEY RECOVERY RATING ASSUMPTIONS


The recovery analysis assumes that Pan Brothers would be reorganised as a going-
concern in bankruptcy rather than liquidated. We assume a 10% administrative claim.


Going-Concern Approach


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- The going-concern EBITDA estimate reflects Fitch's view of a sustainable, post-
reorganisation EBITDA level upon which we base the enterprise valuation.


- We estimate EBITDA at USD62 million to reflect industry conditions and competitive
dynamics.


- An enterprise value multiple of 5x EBITDA is applied to the going-concern EBITDA to
calculate a post-reorganisation enterprise value. The multiple factors in Pan Brothers'
customer quality and stable demand. The multiple also applies a discount from the
median of around 8x of comparable Asian apparel peers, which are generally larger than
Pan Brothers.


- The going-concern enterprise value corresponds to a 'RR3' Recovery Rating for the
senior unsecured notes after adjusting for administrative claims. Nevertheless, Fitch has
rated the senior unsecured bonds at 'C' with a Recovery Rating of 'RR4' because, under
our Country-Specific Treatment of Recovery Ratings Criteria, Indonesia is classified
under the Group D of countries in terms of creditor friendliness, and instrument ratings
of issuers with assets located in this group are subject to a soft cap at the issuer's IDR
and a Recovery Rating of 'RR4'.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:


- Resolution of the missed loan amortisation payment within the grace period.


- Securing the extension of the syndicated loan.


Factors that could, individually or collectively, lead to negative rating
action/downgrade:


- Fitch may downgrade the ratings to 'RD' if Pan Brothers enters into multiple standstill
periods, debt restructuring, bankruptcy, or winding-up procedure.

LIQUIDITY AND DEBT STRUCTURE

Insufficient Liquidity: Pan Brothers had USD29 million of available cash and no
committed undrawn facilities at end-June 2023. This is insufficient to cover short-term
debt maturities, which is mainly the USD124 million syndicated loan that matures in
December 2023. We also estimate that free cash flow will be negative in 2023, driven by
a weaker working-capital position, which will be a further drag on liquidity.

ISSUER PROFILE
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10/16/23, 11:47 AM                                                Fitch Downgrades Pan Brothers to 'C'/'C(idn)'

Pan Brothers is one of Indonesia's largest garment manufacturers, with Adidas and
Uniqlo as its main customers. The company has a production capacity of up to 117
million pieces a year and exports represented around 95% of total sales in 2022.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING

The principal sources of information used in the analysis are described in the Applicable
Criteria.

ESG CONSIDERATIONS

Pan Brothers has an ESG Relevance Score of '5' for Management Strategy due to the
impact of its strategy development and implementation in terms of working-capital
management and funding. This has a negative impact on the credit profile, and is highly
relevant to the rating, resulting in the weak liquidity position and high refinancing risk
that underpin the rating.


The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in
this section. A score of '3' means ESG issues are credit-neutral or have only a minimal
credit impact on the entity, either due to their nature or the way in which they are being
managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process;
they are an observation on the relevance and materiality of ESG factors in the rating
decision. For more information on Fitch's ESG Relevance Scores, visit
https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

                                                  RATING ACTIONS



     ENTITY / DEBT              RATING                                            RECOVERY             PRIOR 
                                                                                    



     PT Pan Brothers                                                                                     CCC-(idn)
                                    Natl LT       C(idn)       Downgrade
     Tbk


                                                                                                         CCC-
                                    LT IDR       C       Downgrade



     PB International
     B.V.


         senior                                                                     RR4                  CCC-
                                    LT      C        Downgrade
         unsecured


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10/16/23, 11:47 AM                                                Fitch Downgrades Pan Brothers to 'C'/'C(idn)'

VIEW ADDITIONAL RATING DETAILS
FITCH RATINGS ANALYSTS

Olly Prayudi
Director
Primary Rating Analyst
National
+62 21 4000 0887
olly.prayudi@fitchratings.com
PT Fitch Ratings Indonesia
DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof.Dr. Satrio Kav 3-5 Jakarta 12940


Shiv Kapoor, CFA
Director
Primary Rating Analyst
International
+65 6796 2720
shiv.kapoor@fitchratings.com
Fitch Ratings Singapore Pte Ltd.
1 Wallich Street #19-01 Guoco Tower Singapore 078881


Olly Prayudi
Director
Secondary Rating Analyst
+62 21 4000 0887
olly.prayudi@fitchratings.com


Kah Ling Chan
Senior Director
Committee Chairperson
+65 6796 2711
kahling.chan@fitchratings.com

MEDIA CONTACTS

Leslie Tan
Singapore
+65 6796 7234
leslie.tan@thefitchgroup.com


Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

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10/16/23, 11:47 AM                                                Fitch Downgrades Pan Brothers to 'C'/'C(idn)'

The rated entity (and/or its agents) or, in the case of structured finance, one or more of
the transaction parties participated in the rating process except that the following
issuer(s), if any, did not participate in the rating process, or provide additional
information, beyond the issuer’s available public disclosure.

APPLICABLE CRITERIA

National Scale Rating Criteria (pub. 23 Dec 2020)
Corporates Recovery Ratings and Instrument Ratings Criteria (pub. 09 Apr 2021)
(including rating assumption sensitivity)
Corporate Rating Criteria (pub. 29 Oct 2022) (including rating assumption sensitivity)

Country-Specific Treatment of Recovery Ratings Criteria (pub. 04 Mar 2023)
Sector Navigators: Addendum to the Corporate Rating Criteria (pub. 13 May 2023)
Climate Vulnerability in Corporate Ratings Criteria (pub. 22 Jul 2023) (including rating
assumption sensitivity)



APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to
criteria providing description of model(s).


Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 (1)

ADDITIONAL DISCLOSURES

Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy

ENDORSEMENT STATUS

PT Pan Brothers Tbk                                      EU Endorsed, UK Endorsed
PB International B.V.                                    EU Endorsed, UK Endorsed
PT Pan Brothers Tbk                                      EU Endorsed, UK Endorsed



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10/16/23, 11:47 AM                                                Fitch Downgrades Pan Brothers to 'C'/'C(idn)'

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10/16/23, 11:47 AM                                                Fitch Downgrades Pan Brothers to 'C'/'C(idn)'

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