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Rating Action:

Moody's downgrades Agung Podomoro Land to B1; outlook stable

27 Nov 2018

Singapore, November 27, 2018 -- Moody's Investors Service has downgraded the corporate family rating of Agung Podomoro Land Tbk (P.T.) to B1 from Ba3.

Moody's has also downgraded the backed senior unsecured rating of the bonds issued by APL Realty Holdings Pte. Ltd., a wholly owned subsidiary of Agung Podomoro, to B1 from Ba3. The bonds are guaranteed by Agung Podomoro and some of its subsidiaries.

The outlook on the ratings is stable.

RATINGS RATIONALE

"The downgrade reflects our expectation that Agung Podomoro's credit metrics will weaken to levels no longer consistent with a Ba3 rating because of its low levels of marketing sales. Further, a greater proportion of its cash flows over the next 12-18 months will come from one-off block sales, a characteristic that is more in line with single B-rated property developers," says Jacintha Poh, a Moody's Vice President and Senior Credit Officer.

"Nonetheless, we expect Agung Podomoro will continue to generate predictable recurring cash flow sufficient to cover 0.9x-1.0x of adjusted interest expenses in 2018 and 2019," adds Poh, who is also Moody's Lead Analyst for Agung Podomoro.

For the first 10 months of 2018, Agung Podomoro achieved around IDR2.3 trillion of core marketing sales despite efforts to spur demand through special promotions and discounts. While the 10-month marketing sales achievement was higher than the IDR1.9 trillion achieved for the full year of 2017, it was well below Moody's expectation of IDR3.5 trillion and points to weak demand from buyers.

Accordingly, Moody's regards a strong pick-up in sales over the last two months of 2018 as unlikely. Further, Moody's expects that rising interest rates and political risks ahead of upcoming presidential elections in Indonesia could dampen sentiment among homebuyers and constrain marketing sales in 2019.

Consequently, Moody's expects Agung Podomoro's key credit metrics to weaken over the next 12-18 months. Leverage -- as measured by adjusted debt/homebuilding EBITDA -- will likely increase to 4.0x-4.3x in 2018 and 2019 from 3.7x for the 12 months ended 30 September 2018. And interest coverage -- as measured by homebuilding EBIT/interest expense -- will likely fall to around 2.0x from 3.2x over the same period.

The lackluster marketing sales achievement will also result in Agung Podomoro relying more on cash flows from one-off block sales. Moody's expects the company to (1) conclude and receive cash from the sale of its Sofitel Bali Hotel for around IDR1.6 trillion by the end of 2018; and (2) conclude another industrial land sale at its Podomoro Industrial Park in Karawang, Greater Jakarta to PT CFLD Karawang New Industry City Development for around IDR2.5 trillion in 2019, but cash will be collected over a three-year period from 2019 to 2021.

Agung Podomoro's liquidity will remain weak over the next 12 months, owing to its large short-term debt maturities of around IDR1.7 trillion. Nonetheless, Moody's expects refinancing risk will be mitigated by the company's undrawn committed facilities of around IDR2.0 trillion as of 30 September 2018 and track record of access to funding.

Agung Podomoro's B1 rating continues to 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.

On the other hand, the rating is constrained by the company's (1) small scale when compared with global peers; (2) complex corporate structure; and (3) exposure to the volatile property sector and the evolving regulatory environment in Indonesia.

The stable outlook reflects Moody's expectation that Agung Podomoro will (1) generate a stable recurring revenue from its investment properties and achieve annual marketing sales of above IDR2.5 trillion; (2) maintain financial discipline while pursuing growth; and (3) successfully refinance its debt maturities over the next 12-18 months.

A near-term upgrade is unlikely, given the weak operating performance. Upward ratings trend could emerge if Agung Podomoro: (1) achieves core marketing sales of around IDR3.5 trillion on a sustained basis; (2) improves its financial profile, such that adjusted debt/homebuilding EBITDA falls below 3.5x and adjusted homebuilding EBIT/interest coverage is above 3.0x; and (3) maintains healthy liquidity in the form of cash balances and committed facilities.

Agung Podomoro's rating could face further downward pressure if: (1) the company fails to implement its business plans and execute planned assets sales; (2) the property market deteriorates, leading to protracted weakness in the company's operations and credit metrics; or (3) the company does not have sufficient cash and committed facilities to cover its short-term debt obligations.

Metrics indicative of a downgrade include adjusted debt/homebuilding EBITDA over 4.5x and adjusted homebuilding EBIT/ interest coverage below 2.0x on a sustained basis.

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.

Agung Podomoro Land Tbk (P.T.) is an integrated property developer and listed on the Indonesia Stock Exchange in 2010. The company and its subsidiaries are engaged in the development, management and operation of apartments, landed houses, shopping centers, office towers and hotel properties. It is controlled by Trihatma Kusuma Haliman, who had an around 80% stake in the company at 31 October 2018.

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 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

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