20240314_PBRX_Laporan Informasi dan Fakta Material_31596624_lamp2.pdf

3/14/24, 8:58 AM                          Fitch Downgrades Pan Brothers to 'RD' and 'RD(idn)' on Uncured Missed Coupon Payment

Liquidity Crisis: Pan Brothers' short-term liquidity is critically weak. We estimate that
Pan Brothers had about USD28 million in cash at end-2023, which included the USD6.5
million in restricted cash in the IRA.


In addition, negotiations continue on the extension of its USD124 million syndicated
loan that was due December 2023, as the company does not have cash to repay the loan.
A waiver has been granted by the panel banks until 1 April 2024 for completion.


Ongoing Financial Obligations: The default could be prolonged given that Pan Brothers
has multiple financial obligations. The next interest payment on the December 2025
bond is due in July 2024, and there are also the negotiations over extending the
syndicated loan facility. Any re-rating would be based on the finalisation of these
agreements and the resultant capital structure.


The company also has high working-capital requirements and limited access to new
funding. It will have to rely on existing bank lines and its limited cash balance to fund
working capital needs. Liquidity pressure is heightened, as we expect working capital to
remain mildly negative and there are annual maintenance capex requirements.


Declining Revenue: We estimate revenue to have declined by around 5% in 2023 on
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 failure to cure missed semi-annual coupon payment within the
grace period.

KEY ASSUMPTIONS

Fitch's Key Assumptions Within the 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;


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3/14/24, 8:58 AM                          Fitch Downgrades Pan Brothers to 'RD' and 'RD(idn)' on Uncured Missed Coupon Payment

- Capex of around USD4 million in 2023 in the absence of capacity expansion;


- No dividend payments in 2023-2024.


RECOVERY ANALYSIS

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


- 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 for 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:


- Fitch would reassess Pan Brothers' credit profile and its debt issuance if a debt
restructuring process is completed or there is successful resolution to the current
default.


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




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3/14/24, 8:58 AM                          Fitch Downgrades Pan Brothers to 'RD' and 'RD(idn)' on Uncured Missed Coupon Payment

- Fitch may downgrade the ratings to 'D' if Pan Brothers has entered into bankruptcy
filings, administration, receivership, liquidation or other formal winding-up procedures,
or otherwise ceased business.

LIQUIDITY AND DEBT STRUCTURE

Insufficient Liquidity: Pan Brothers had USD32 million of available cash and no
committed undrawn facilities at end-September 2023. This is insufficient to cover short-
term debt maturities, which largely constitute a USD124 million syndicated loan that
matured in December 2023. We also estimate free cash flow to have been negative in
2023, driven by a weaker working capital position, which will further drag on liquidity.

ISSUER PROFILE

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 underpins 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
www.fitchratings.com/topics/esg/products#esg-relevance-scores.

                                                RATING ACTIONS



     ENTITY / DEBT              RATING                                            RECOVERY             PRIOR 
                                                                                    
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3/14/24, 8:58 AM                          Fitch Downgrades Pan Brothers to 'RD' and 'RD(idn)' on Uncured Missed Coupon Payment




     PT Pan Brothers                                                                                     C
                                    LT IDR       RD       Downgrade
     Tbk


                                                                                                         C(idn)
                                    Natl LT      RD(idn)        Downgrade



     PB International
     B.V.


         senior                                                                     RR4                  C
                                    LT     C       Affirmed
         unsecured


VIEW ADDITIONAL RATING DETAILS
FITCH RATINGS ANALYSTS

Kah Ling Chan
Senior Director
Primary Rating Analyst
International
+65 6796 2711
kahling.chan@fitchratings.com
Fitch Ratings Singapore Pte Ltd.
1 Wallich Street #19-01 Guoco Tower Singapore 078881


Felita Felita
Director
Primary Rating Analyst
National
+62 21 4000 0581
felita.felita@fitchratings.com
PT Fitch Ratings Indonesia
DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof.Dr. Satrio Kav 3-5 Jakarta 12940


Felita Felita
Director
Secondary Rating Analyst
International
+62 21 4000 0581
felita.felita@fitchratings.com




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3/14/24, 8:58 AM                          Fitch Downgrades Pan Brothers to 'RD' and 'RD(idn)' on Uncured Missed Coupon Payment

Vicky Melbourne
Managing Director
Committee Chairperson
+61 2 8256 0325
vicky.melbourne@fitchratings.com

MEDIA CONTACTS

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


Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

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)
Country-Specific Treatment of Recovery Ratings Criteria (pub. 04 Mar 2023)
Corporates Recovery Ratings and Instrument Ratings Criteria (pub. 14 Oct 2023)
(including rating assumption sensitivity)
Corporate Rating Criteria (pub. 04 Nov 2023) (including rating assumption sensitivity)
Sector Navigators – Addendum to the Corporate Rating Criteria (pub. 04 Nov 2023)



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


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3/14/24, 8:58 AM                          Fitch Downgrades Pan Brothers to 'RD' and 'RD(idn)' on Uncured Missed Coupon Payment

Endorsement Policy
ENDORSEMENT STATUS

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



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3/14/24, 8:58 AM                          Fitch Downgrades Pan Brothers to 'RD' and 'RD(idn)' on Uncured Missed Coupon Payment

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