Fitch Ratings has lowered the credit rating of Indonesia-based textile manufacturer PT Delta Merlin Dunia Textile (DMDT) by six steps in less than 10 days amid concern over the company’s liquidity.
Fitch Ratings cut DMDT’s long-term issuer default rating (IDR) and its senior unsecured US dollar notes for a second time on Wednesday to 'CCC-' from 'B-' after lowering the rating to ‘B-’ from ‘BB’ on July 18. The downgrade by six notches comes as the trade war between China and the United States has seriously hurt the company’s business.
Fitch Ratings said in a statement on Wednesday that the downgrade reflected DMDT's heightened liquidity risk, in particular with regard to the company's ability to make the scheduled principal amortization and interest payments in September 2019.
DMDT, a subsidiary of Duniatex Group, had around Rp 700 billion in cash as of March 30, Fitch estimates. The rating agency believes the funds would no longer be available to meet DMDT's interest and scheduled principal amortization payments.
The company, through its subsidiaries, provides textile spinning, weaving, dyeing and finishing services. It was founded in 1971 and is based in Surakarta, Central Java.
Fitch estimates that DMDT has around Rp 400 billion to Rp 450 billion in interest, amortization payments and maturing debt due in the third quarter, mostly in September, on its bond and bank loans.
Fitch also said it believed DMDT's banking and capital market access could be restricted due to an affiliate's financial distress, taking into account the common ownership and the company's integrated operations within Duniatex Group.
One of the group's spinning subsidiaries, PT Dunia Delta Dunia Sandang Tekstil (DDST), missed a scheduled payment, Fitch said.
S&P earlier cut its credit score on DMDT’s dollar bonds by six steps to CCC, citing “significant liquidity challenges.”
The US-China trade tensions were “significantly hurting” the Indonesian textile market, and DMDT’s liquidity was affected by plummeting prices due to the oversupply of imported cheap fabric from China, S&P said. (hen)