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Rating Action:

Moody's assigns B2 ratings to Alam Sutera's proposed bonds

16 Apr 2018

Singapore, April 16, 2018 -- Moody's Investors Service has assigned a backed senior unsecured rating of B2 to the proposed senior unsecured notes to be issued by Alam Synergy Pte. Ltd. The proposed notes are guaranteed by Alam Sutera Realty Tbk (P.T.) (B2 stable) and most of its subsidiaries and rank pari passu with the 2020 notes and 2022 notes.

The rating outlook is stable.

Alam Sutera will use the net proceeds from the proposed issuance towards partial redemption of its 2020 notes, capital spending and other working capital purposes.

RATINGS RATIONALE

"The proposed notes are not exposed to either legal or structural subordination risk. Hence the rating is in line with Alam Sutera's B2 corporate family rating," says Jacintha Poh, a Moody's Vice President and Senior Analyst.

At 31 December 2017, 84% of Alam Sutera's total debt was unsecured. And, the majority of Alam Sutera's borrowings are at the holding company. Furthermore, the notes are guaranteed by all major subsidiaries.

"The increase in borrowings from the proposed notes can be accommodated in Alam Sutera's B2 corporate family rating and is in line with our expectation that the company will increase capital spending to speed up land acquisitions in North Serpong for the next phase of development at its Alam Sutera township," adds Poh, who is also Lead Analyst for Alam Sutera.

Moody's expects Alam Sutera's financial metrics will likely weaken in 2018 with adjusted debt/homebuilding EBITDA registering around 3.9x and homebuilding EBIT/interest expense at around 3.0x. These financial metrics remain supportive of the company's B2 ratings.

Alam Sutera's B2 rating reflects the company's ownership of a large and low-cost land bank — which has allowed it to generate strong gross profit margins of above 50% — as well as its proactive approach toward debt capital management.

The rating also takes into account the increased volatility in Alam Sutera's earnings and cashflow over the last two years, driven by larger contributions from land sales to China Fortune Land Development Co., Ltd (CFLD), instead of income from the company's core business of property development.

However, the rating is constrained by Alam Sutera's small scale and limited geographic diversity. The company is also exposed to the cyclical property sector, with limited contributions from the more stable, recurring income stream from its investment properties.

The rating outlook is stable, reflecting our expectation that CFLD will continue to buy land plots from Alam Sutera at Pasar Kemis, supporting the company's financial metrics within the thresholds of its B2 ratings level over the next 12-18 months.

An upward ratings trend could emerge, if Alam Sutera shows progress in achieving core marketing sales of at least IDR4 trillion over a 12-month period and demonstrates the ability to maintain stable financial metrics, such that adjusted debt/ homebuilding EBITDA is below 3.5x and adjusted homebuilding EBIT/interest expense is above 3.0x.

Further, an upgrade will also require that the company maintains a strong liquidity position, supported by a long-dated debt maturity profile.

The ratings could be downgraded if Alam Sutera's financial and liquidity profiles weaken, owing to: (1) the company's failure to execute its business plans, in particular, its land sales to CFLD; (2) a deterioration in the property market, leading to protracted weakness in its operations and credit profile; and (3) a material depreciation in the Indonesian rupiah, which may increase the company's debt servicing obligations.

Metrics indicative of downward ratings pressure include: (1) adjusted debt/homebuilding EBITDA exceeding 5.0x; (2) adjusted homebuilding EBIT/interest expense falling below 2.0x; or (3) insufficient cash to cover short-term debt obligations.

The principal methodology used in this rating was Homebuilding And Property Development Industry published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Established in November 1993 and listed on the Indonesian Stock Exchange in December 2007, Alam Sutera Realty Tbk (P.T.) is an integrated property developer in Indonesia that focuses on the sale of land lots in accordance with township planning requirements, as well as property development in residential and commercial segments in Indonesia.

At 31 December 2017, the company was approximately 47%-owned by the family of The Ning King.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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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