S&P Global Ratings downgrades Press Metal on its high investments

KUALA LUMPUR: S&P Global Ratings has downgraded Press Metal Aluminium Holdings Bhd from BB- to B+ due to its continued high investments while its cash flow leverage to weaken over the next 12 to 18 months.

The rating agency has lowered its ratings on Press Metal because the company’s growth aspirations make debt reduction and more prudent funding management less plausible until 2021 at the earliest.

“At the same time, we believe Press Metal’s higher debt over the next 12 to 18 months reduce its headroom to absorb volatility in aluminum and alumina prices,” it said in a statement.

S&P pointed out Press Metal’s growth appetite would likely result in higher capital spending for raw material security over the next 12 to 18 months.

“We expect the company to partly fund the capital spending and investments with debt after its operating cash flows are used up.

“Meanwhile, Press Metal’s operating performance is exposed to volatility in aluminum and alumina prices due to global growth concerns and trade frictions,” it said.

S&P Global Ratings believed Press Metal management’s growth aspirations are likely to persist beyond the planned investments until 2021.

“We understand that there are limited investments prospects. However, we believe the company’s comfortable leverage from the management’s perspective and availability of free operating cash flows, especially starting 2021, will trigger further growth investments. The potential of significant debt reduction is therefore low beyond 2021.

“We expect Press Metal’s cash flow leverage to weaken over the next 12 to 18 months owing to a rise in growth investments in recent months.

The company announced last month the development of phase three of its Bintulu plant in Samalaju, Sarawak.

“The brownfield development will add 320,000 tonnes of smelting capacity to Press Metal’s current capacity of 760,000 tonnes per annum. It has also secured a 15-year power purchase agreement with Sarawak Energy Bhd for 500 megawatts of electricity, which will power Press Metal’s planned expansion,” it said.