Singapore, January 18, 2022 -- Moody's Investors Service has affirmed the corporate family rating of
Modernland Realty Tbk (P.T.) (Modernland) at Ca.
At the same time, Moody's has affirmed the Ca backed senior
secured rating of the restructured $179 million 2025 notes issued
by JGC Ventures Pte. Ltd. and the restructured $268
million 2027 notes issued by Modernland Overseas Pte. Ltd.
JGC Ventures Pte. Ltd. and Modernland Overseas Pte.
Ltd. are wholly owned subsidiaries of Modernland, and the
notes are guaranteed by Modernland and most of its subsidiaries.
Moody's has also changed the outlook to stable from negative.
"The change in outlook to stable reflects Modernland's completion
of the restructuring of its US dollar notes, which led to an improvement
in the company's liquidity over the next 12-18 months.
Modernland's liquidity is further supported by proceeds of around
IDR1 trillion from the sale of its 33% stake in PT Astra Modernland,"
says Jacintha Poh, a Moody's Senior Vice President.
"The affirmation of Modernland's Ca rating reflects its unsustainable
capital structure, as indicated by its extremely high leverage because
of weak operating performance," adds Poh.
RATINGS RATIONALE
In December 2021, Modernland completed the restructuring of its
US dollar notes. The original $150 million notes due August
2021, issued by JGC Ventures Pte. Ltd., was
amended and restated to $179 million due June 2025. In addition,
the original $240 million notes due April 2024, issued by
Modernland Overseas Pte. Ltd., was amended and restated
to $268 million due April 2027.
The coupon rates on the original notes were also amended such that they
now comprised a cash and payment-in-kind component.
The cash coupon starts at 0% in the first year and increases by
one percentage point annually to a maximum of 3% in the fourth
year, while the payment-in-kind coupon is fixed at
3%.
The restructured notes are secured by first priority liens on a number
of land parcels that will provide a security coverage ratio of 60%.
Modernland is also required to complete $40 million of asset sales
on or prior to 30 June 2023 and another $160 million on or prior
to 31 December 2024, in which 75% of the proceeds from such
asset sales must be used towards redeeming the restructured US dollar
notes.
Modernland's liquidity improved significantly following the restructuring
completion of its US dollar notes as well as the sale of its 33%
stake in PT Astra Modernland, a joint venture with Astra International
and Hongkong Land, for IDR1 trillion on 29 December 2021.
Moody's expects Modernland's liquidity to be good over the
next 12-18 months. As of 30 September 2021, Modernland
had cash and cash equivalents of IDR130 billion. This, together
with its operating cash flow, which Moody's estimates to be
around IDR3 billion over the next 18 months, and IDR1 trillion from
the stake sale of PT Astra Modernland, will be sufficient to cover
its maturing debt obligations of around IDR100 billion and estimated capital
spending of around IDR60 billion.
Modernland achieved only IDR566 billion of marketing sales in the first
nine months of 2021, a significant decline from IDR1.5 trillion
pre-pandemic in 2019. Moody's expects the company's
marketing sales to remain weak at around IDR750 billion in 2021 and IDR900
billion in 2022 because demand for industrial projects is unlikely to
recover over the next 12-18 months.
Modernland's leverage, measured by debt/homebuilding EBITDA
will remain elevated at 56x in 2021 and 41x in 2022, indicating
an unsustainable capital structure. The company's homebuilding
EBIT interest coverage will improve to 0.1x in 2021 and 3.1x
in 2022 because of the lower coupon rate on its restructured US dollar
notes. For the 12 months ended 30 September 2021, Modernland
had a leverage of 71x and homebuilding EBIT interest coverage of 0x.
In terms of environmental, social and governance (ESG) risks,
the rating incorporates governance risks based on Modernland's weak financial
management, which resulted in missed payments and the restructuring
of all its debt in 2020 and 2021. Moody's also considered the founding
family's concentrated ownership of Modernland and the company's
board, where only two of five members are independent.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Modernland's ratings would depend on the company establishing
a sustainable capital structure and business operations.
Modernland's ratings could be downgraded if the risk of default
increases and if Moody's estimates that expected losses for the
company's creditors will be higher than those implied by the Ca rating.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Modernland Realty Tbk (P.T.) is an integrated property developer
in Indonesia that focuses on industrial town, residential and township
developments. It also has small exposures to the hospitality and
commercial property segments. The company listed on the Jakarta
Stock Exchange in 1993 and is controlled by the Honoris family.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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Jacintha Poh
Senior Vice President
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
Vikas Halan
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
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