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Announcement:

Moody's: Bumi Serpong Damai's ratings unchanged following tap bond offering

09 May 2017

Singapore, May 09, 2017 -- Moody's Investors Service says that Bumi Serpong Damai TBK (P.T.)'s (BSD) Ba3 corporate family rating and the Ba3 senior unsecured rating on the notes issued by BSD's wholly owned subsidiary — Global Prime Capital Pte. Ltd. ---- and guaranteed by BSD and some of its subsidiaries, are unaffected by BSD's announcement of a tap bond offering on its existing USD200 million 5.50% senior notes due 18 October 2023.

The ratings outlook is stable.

The tap bond offering of up to USD100 million has the same terms and conditions as the existing notes, and proceeds will be used to fund the development of investment properties and for general corporate purposes.

"BSD's additional debt will weaken its financial metrics over the next 12-18 months, but we expect that the company will remain adequately positioned within its Ba3 rating parameters, supported by modest revenue growth," says Jacintha Poh, a Moody's Vice President and Senior Analyst.

Moody's estimates that BSD's debt leverage — as measured by adjusted debt/homebuilding EBITDA — will rise to about 2.8x-3.0x over the next 12-18 months compared with 2.8x in 2016. Such a result would represent a narrowing in its headroom versus its ratings trigger of 3.0x, but remain within the Ba3 rating parameters.

Moody's also estimates that the company's interest coverage — as measured by homebuilding EBIT/interest expense — will fall to about 4.3x-4.6x over the next 12-18 months compared with 5.4x in 2016.

"BSD expects to manage its exposure to foreign exchange rate risk by hedging the principal portion of its outstanding US dollar notes, including the additional amount from its tap issuance, but the company has yet to put in place any financial hedges," adds Poh, who is also Moody's Lead Analyst for BSD.

At 31 December 2016, BSD had approximately USD278 million of outstanding bond payable, but did not have any option facilities to protect its exposure to the US dollar. However, the company had USD100 million of USD term deposits as at 31 December 2016 which acts as a natural hedge. Furthermore, the company's foreign exchange rate risk is partially mitigated by the long-dated maturities of its US dollar debt, with the earliest maturity in 2020.

BSD's Ba3 ratings reflect its established position as one of the largest property developers in Indonesia, with diversification across multiple projects and property segments -- residential, office, retail, industrial and hospitality. The company's focus on the sale of land lots and low-rise commercial and residential properties entails lower development risks and provides it with the flexibility to scale operations in line with demand.

Nonetheless, BSD's ratings are constrained by its small scale relative to global peers, complex corporate structure, and concentration in the Greater Jakarta region. The company is also exposed to the volatile property sector in Indonesia, and the evolving regulatory environment in the country.

The stable ratings outlook reflects Moody's expectation that BSD will achieve its sales target and maintain financial discipline as it pursues growth.

BSD's ratings are unlikely to be upgraded over the near to medium term — given BSD's weakened financial metrics — but an upward rating trend could emerge, if the company can execute its business plans and grow revenue to above IDR10 trillion, and maintain its healthy financial and liquidity profile.

Credit metrics that will support an upgrade include an adjusted debt/homebuilding EBITDA below 2.5x, and adjusted homebuilding EBIT/interest coverage above 6.0x on a sustained basis.

On the other hand, BSD's ratings could face downward pressure if: (1) the company fails to implement its business plans; (2) there is a deterioration in the property market, leading to protracted weakness in its operations and credit profile; and/or (3) evidence emerges of cash leaking from BSD to fund affiliated companies, for example, through inter-company loans, aggressive cash dividends, or investments in affiliates.

Moody's considers an adjusted debt/homebuilding EBITDA over 3.0x and adjusted homebuilding EBIT/interest coverage below 4.0x on a sustained basis as indications of a possible downgrade.

The principal methodology used in these ratings was Homebuilding And Property Development Industry published in April 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Established in 1984, Bumi Serpong Damai (BSD) is the largest listed developer on the Indonesia Stock Exchange by market capitalization. The company and its subsidiaries are engaged in the development, management and operation of residential townships, condominium towers, office buildings, retail malls and hotel properties. It is sponsored by Sinarmas Land Limited (unrated), which held an approximately 63% share in BSD at 31 March 2017.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Jacintha Poh
Vice President - Senior 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
Client Service: 852 3551 3077

Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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