KUALA LUMPUR (Oct 23): S&P Global Ratings has revised its outlook on Press Metal Aluminium Holdings Bhd from positive to stable to reflect the company's slower deleveraging and continued increase in working capital and short-term debt.

At the same time, it has affirmed its issue rating of BB on the company.

In a note today, it said Press Metal has used its improving cash flows to further invest in acquisitions, working capital, and pay out dividends, instead of reducing debt, which S&P expects to continue.

"PMB's (Press Metal) working capital requirements have been significant, which we don't expect to unwind immediately. The company invested RM980 million over 2017 and RM320 million during the first half ended June 30, 2018, for working capital," S&P said.

It said these amounts are a substantial portion of Press Metal's funds from operations during the two periods, which were RM1.2 billion and RM700 million, respectively.

"As a result, the company didn't reduce its short-term debt, contrary to our previous expectations," said S&P.

The elevated working capital is believed to be due to higher metal and raw material prices, as well as an inventory build-up and longer credit periods for customers, it said.

"As a result, PMB's cash conversion cycle extended to 69 days by June 2018 from 46 days in March 2016. Although some unwinding of working capital is possible, we don't expect an immediate and large release of cash from such unwinding. As such, cash availability to reduce debt is likely to be low," it said.

S&P added it anticipates Press Metal's debt to be higher than previous expectations, at about RM3.5 billion for the rest of 2018 and 2019.

At the midday break today, Press Metal shed 0.42% or 2 sen to RM4.78 with 280,400 shares traded.