Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

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High Yield Experts

Senior Credit Analyst, Lucror Analytics

Trung Nguyen

Senior Credit Analyst

Debt Capital Markets

Steel Pipe Industry of Indonesia / Debt Capital Markets

Steel Pipe Industry of Indonesia (ISSP IJ)

We view Spindo as “High Risk” on the LARA scale due to poor business economics and an aggressive financial policy. While the company claims to be a leader in a tiny market in Indonesia, the market is in fact a global one, with many massive integrated steel manufacturers also producing steel pipes. That said, Indonesian local producers enjoy some regulatory protection, as infrastructure projects in the country are required to use local components including steel pipes. The operating environment is tough, compounded by the downturn in the oil & gas market (a major market for steel pipes). Hence, all local players' utilisation rates are low at c. 40%. Still, Spindo has been increasing capacity in the past few years, and growing its inventory. Inventory outstanding days have more than doubled to over 365 days. Cash flow and liquidity have been strained as a result. Cash is almost always nil in the business, with the company funding capex and inventory through short-term debt. We believe Spindo's ability to withstand financial stress is poor, and will likely become a distressed credit if there is a major downturn. Our Credit Bias is “Negative” due to the cyclical and unpredictable nature of the business, high and rising working capital, weak cash flow, elevated leverage and very poor liquidity. We view Spindo’s corporate governance as “Weak” on the LAGA scale, given: [1] the family-owned nature, without notable institutional investors; [2] family members on the Board of Commissioners and in senior management; and [3] ongoing related-party transactions, including management fees and loans to the controlling shareholder. We believe the company has a weak ability to withstand financial stress, with its highly volatile business profile and aggressive financial policy, and could end up as a distressed credit. While we see the possibility of Spindo pricing its Notes at c. 9%, we would still favour the GJTLIJ '22s instead. We do not recommend investing in the proposed Notes at below 9.5%, unless for diversification purposes.

   We view Spindo as “High Risk” on the LARA scale due to poor business economics and an aggressive financial policy. While the company claims to be a leader in a tiny market in Indonesia, the market is in fact a global one, with many massive integrated steel manufacturers also producing steel pipes. That said, Indonesian local producers enjoy some regulatory protection, as infrastructure projects in the country are required to use local components including steel pipes. The operating environment is tough, compounded by the downturn in the oil & gas market (a major market for steel pipes). Hence, all local players' utilisation rates are low at c. 40%. Still, Spindo has been increasing capacity in the past few years, and growing its inventory. Inventory outstanding days have more than doubled to over 365 days. Cash flow and liquidity have been strained as a result. Cash is almost always nil in the business, with the company funding capex and inventory through short-term debt. We believe Spindo's ability to withstand financial stress is poor, and will likely become a distressed credit if there is a major downturn.    Our Credit Bias is “Negative” due to the cyclical and unpredictable nature of the business, high and rising working capital, weak cash flow, elevated leverage and very poor liquidity.    We view Spindo’s corporate governance as “Weak” on the LAGA scale, given: [1] the family-owned nature, without notable institutional investors; [2] family members on the Board of Commissioners and in senior management; and [3] ongoing related-party transactions, including management fees and loans to the controlling shareholder.    We believe the company has a weak ability to withstand financial stress, with its highly volatile business profile and aggressive financial policy, and could end up as a distressed credit. While we see the possibility of Spindo pricing its Notes at c. 9%, we would still favour the GJTLIJ '22s instead. We do not recommend investing in the proposed Notes at below 9.5%, unless for diversification purposes. 

Spindo - New Issue Assessment - Lucror Analytics