This article first appeared in The Edge Financial Daily on October 24, 2018

KUALA LUMPUR: S&P Global Ratings has revised its outlook for 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 issued rating of ‘BB’ on the company.

In a note yesterday, 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.

“Press Metal’s working capital requirements have been significant, which we do not 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 substantial portions 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 did not 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.

 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.