Singapore, May 24, 2019 -- Moody's Investors Service has affirmed the Ba3 corporate family rating
of Bumi Serpong Damai TBK (P.T.) (BSD).
At the same time, Moody's has affirmed the Ba3 backed senior
unsecured rating of the 2021 notes and 2023 notes issued by Global Prime
Capital Pte. Ltd., a wholly owned subsidiary of BSD.
The notes are guaranteed by BSD and some of its subsidiaries.
Moody's has changed the outlook to stable from positive.
RATINGS RATIONALE
"The change in BSD's outlook to stable from positive reflects a
deterioration in the company's credit metrics in 2018, owing
to weaker marketing sales and higher debt levels," says Jacintha
Poh, a Moody's Vice President and Senior Credit Officer.
The change in outlook also takes into account Moody's expectation
that the company's key credit metrics over the next 12-18
months will unlikely meet the thresholds set for a ratings upgrade.
In 2018, BSD achieved IDR5.2 trillion of marketing sales,
excluding sales from joint venture projects, such as Nava Park and
The Zora. This result was equivalent to 79% of its IDR6.6
trillion full year target. Historically, the company has
always exceeded 80% of its full-year target. The
weaker-than-expected marketing sales was caused by poor
buyer sentiment in the lead-up to Indonesia's presidential
election.
Moody's points out that BSD has taken on additional debt and kept
a portion of the proceeds as cash. Total adjusted debt increased
to IDR14.3 trillion at 31 December 2018 from IDR9.5 trillion
at 31 December 2017. Cash, on the other hand, increased
to IDR8.9 trillion from IDR5.8 trillion during the same
period, supporting the company's very good liquidity for 2019
and 2020.
BSD's credit metrics weakened in 2018, with adjusted debt/homebuilding
EBITDA at 4.2x (1.6x in 2017; 2.5x in 2016)
and homebuilding EBIT/interest expense at 3.2x (10.4x in
2017; 5.2x in 2016).
While Moody's expects a recovery over the next 12-18 months
— with adjusted debt/homebuilding EBITDA at around 3.5x and
homebuilding EBIT/interest expense at around 3.1x — BSD's
credit metrics will remain weaker than the upgrade thresholds of adjusted
debt/homebuilding EBITDA below 2.5x and homebuilding EBIT/interest
expense above 5.0x.
Improvements in BSD's key credit metrics will be led by (1) the
repayment of debt with cash; the company completed a call redemption
of its remaining $79 million 6.75% notes due April
2020 in April 2019; and (2) an improvement in EBITDA, owing
to a pick-up in marketing sales.
"The affirmation of BSD's Ba3 corporate family rating reflects
the company's established position as one of the largest property
developers in Indonesia, strong profitability, supported by
its ownership of a large and low-cost land bank, and a growing
recurring income base," adds Poh, who is Moody's
Lead Analyst for BSD.
In 2018, BSD's recurring revenue accounted for 22%
of total revenue, at around IDR1.5 trillion, largely
driven by contributions from two office towers acquired at the end of
2017. Over the next 12-18 months, Moody's expects
the company's recurring revenue to grow by around 20%,
supported by the construction of new investment properties, namely,
Digital Hub and Green Office Park 1 office.
Moody's estimates that BSD's recurring cash flow will cover at least
0.8x of interest expense. The marginal decline in coverage
is because of higher interest expenses due to increased debt levels,
and the higher coupon rate on its US-dollar bond issued in 2018.
BSD is exposed to foreign exchange rate risk. Specifically,
the company's US-dollar bond issuance made up around 68%
of its outstanding debt at 31 March 2019, while business transactions
are in Indonesian rupiah. Nonetheless, the company's
exposure to foreign exchange rate risk is partially mitigated by the fact
that there are no maturities of its US dollar bonds until April 2021.
Moody's will unlikely upgrade BSD's ratings over the near
to medium term, given the stable outlook, but Moody's
would consider upgrading the ratings if the company successfully executes
its business plans, while maintaining healthy credit metrics and
good liquidity.
Credit metrics that would support an upgrade include adjusted debt/homebuilding
EBITDA below 2.5x, and adjusted homebuilding EBIT/interest
coverage above 5.0x. An upgrade will also require that the
recurring cash flows cover at least 1.0x of interest expense.
Moody's could downgrade BSD's ratings if (1) the company fails to
implement its business plans; (2) the property market deteriorates,
leading to protracted weakness in BSD's operations and credit profile;
or (3) there is evidence 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 (1) adjusted debt/homebuilding EBITDA over 4.0x,
and (2) adjusted homebuilding EBIT/interest coverage below 3.0x
on a sustained basis as indications that a downgrade may be necessary.
The principal methodology used in these ratings 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 1984, Bumi Serpong Damai TBK (P.T.)
(BSD) is the largest developer listed 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. The company is sponsored by Sinarmas
Land Limited, which held around a 60% interest in BSD at
31 March 2019.
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
VP - Senior Credit Officer
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
