Funding access will remain challenging for Indonesian textiles: Fitch

Sritex and Pan Brothers are unlikely to enjoy the same funding access and financial flexibility as prior to the restructuring, Fitch Ratings said in its latest report What Investors Want to Know: Indonesian Textiles.

"There is limited appetitive for any form of funding for the Indonesian textile sector despite improving funding conditions in 2021. The sector was experiencing growing working capital, as companies found themselves funding the textile value chain, but access to banks' short-term facilities dried up," the report said.

Sritex and Pan Brothers rely heavily on short-term working-capital facilities to cover their long cash-conversion cycle – which has resulted in negative cash flow from operations (CFO) in the past few years despite their stable EBITDA margins. Sustaining revenue growth and managing operational expenses will be challenging with decreasing access to such facilities, as these companies will have to rely increasingly on their dwindling cash balances, according to the report.

Fitch believes that a direct government bailout would be unlikely for the industry, despite its labour-intensive nature and export contribution to exports. Hence, restoring lenders' confidence towards the industry would be crucial for the sector's sustainability. However, various measures introduced by the government so far (e.g. soft loans, safeguards) has had only a limited impact in improving funding access.

Fibre2Fashion News Desk (RKS)