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Rating Action:

Moody's assigns B2 corporate family rating to Alam Sutera Realty

Global Credit Research - 13 Mar 2012

Singapore, March 13, 2012 -- Moody's Investors Service has today assigned a B2 corporate family rating to PT Alam Sutera Realty Tbk (Alam Sutera Realty).

At the same time, Moody's has assigned a provisional (P)B2 senior unsecured bond rating to the proposed senior unsecured notes to be issued by Alam Sutera International Private Limited (Alam Sutera International), an entity wholly-owned by Alam Sutera Realty, and guaranteed by Alam Sutera Realty and its subsidiaries.

The outlook on both ratings is stable.

RATINGS RATIONALE

This is the first time Moody's has assigned ratings to Alam Sutera Realty or Alam Sutera International. The provisional status of the senior unsecured bond rating will be removed upon completion of the bond issuance.

The proceeds from the issuance will be used for (a) the acquisition of land; (b) the development of new and existing projects; and (c) the funding of transaction expenses.

"Alam Sutera Realty's B2 rating reflects its sound business model, which focuses on township design, as well as the sale of land lots and low-rise commercial and residential properties. This approach allows it the flexibility to scale its projects in accordance with market conditions and lowers development risks," says Alvin Tan, a Moody's Analyst.

"The company also benefits from an extensive low-cost land bank in Tangerang, and which it has been acquiring since the early 1990s. As such, it is well-positioned to benefit from the appreciating land values in the region, and giving it the ability to generate strong adjusted operating margins of 42 to 50% over the past two years," adds Tan, who is also Moody's Lead Analyst for Alam Sutera Realty.

However, the company's ratings are constrained by its small scale, lack of geographic diversity, and limited track record in township planning, having focused on only a single project in Alam Sutera since 1994.

Then again, Moody's also recognizes that it had sold or leased a total of 9,252 land lots and properties that it had developed in Alam Sutera, of which 6,638 were residential land lots and properties, as at 31 December 2011.

"Alam Sutera Realty remains exposed to the volatile property sector, with a limited contribution from the more stable, recurring income stream from its investment properties," says Tan.

"And while the Alam Sutera township project has been successful to date, the company's ability to replicate the same model with its second township project in Pasar Kemis remains uncertain. Furthermore, plans to expand into Bali's tourism sector, especially its potential investment in the Garuda Wisnu Kencana tourism project, also increases execution risks," Tan adds.

The stable outlook reflects Moody's expectation that Alam Sutera Realty will be well-supported by its ample low-cost land bank in Greater Jakarta, as well as its ongoing discipline in the pursuit of its growth strategy.

Upward rating pressures could emerge if Alam Sutera Realty is able to execute its expansion strategy successfully, and which also includes the ability to replicate the Alam Sutera township model in its new project in Pasar Kemis. An upgrade would also be supported by sustained improvement in sales performance and positive free cash flow generation. Credit metrics that will support an upgrade include EBIT/Interest coverage above 4.0-4.5x and adjusted leverage below 40% on a sustained basis.

On the other hand, downward pressure could emerge if Alam Sutera Realty's financial and liquidity profiles weaken due to (1) the company failing to execute its business plans; (2) a deterioration in the property market, leading to protracted weakness in its operations and credit profile; and (3) a material depreciation in the Rupiah, and which increases the company's debt-servicing obligations.

Moody's considers EBIT/Interest coverage below 2.0x and adjusted leverage above 50% as indications that a downgrade may be necessary. The senior unsecured bond rating could also be downgraded if the company raises more secured debt than expected.

The principal methodology used in these ratings was Moody's Global Homebuilding Industry, published in March 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Established on 3 November 1993, PT Alam Sutera Realty Tbk (Alam Sutera Realty) is an integrated property developer in Indonesia with a sizeable land bank of 1,451 ha (gross area) as of 31 December 2011. The company focuses on the sale of land lots in accordance to township planning needs, as well as property development in residential, commercial and industrial segments in Indonesia. Alam Sutera Realty was founded by the family of The Ning King, and was formerly known as PT Adhihutama Manunggal, The company listed on the Indonesian Stock Exchange on 18 December 2007.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Alvin Tan
Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Philipp L. Lotter
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Moody's assigns B2 corporate family rating to Alam Sutera Realty
No Related Data.

 

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