Singapore, January 31, 2020 -- Moody's Investors Service has downgraded the corporate family rating of
Alam Sutera Realty Tbk (P.T.) ("Alam Sutera") to B3 from
B2.
At the same time, Moody's has downgraded the backed senior unsecured
rating of the 2021 notes and 2022 notes issued by Alam Synergy Pte.
Ltd., a wholly owned subsidiary of Alam Sutera, to
B3 from B2.The notes are guaranteed by Alam Sutera and most of
its subsidiaries.
The outlook on the ratings above remains negative.
RATINGS RATIONALE
The ratings downgrade to B3 reflects Moody's expectations that Alam Sutera's
credit metrics and liquidity will weaken, because of a slowdown
in its land sales to China Fortune Land Development Co.,
Ltd. (CFLD, Ba3 stable), and refinancing risk on its
US dollar bond: $175 million due April 2021 and $370
million due April 2022.
"Alam Sutera's marketing sales and cash flow are reliant on
proceeds from land sales to CFLD, which slowed in 2019 and we do
not expect a recovery in 2020," says Jacintha Poh, a Moody's
Vice President and Senior Credit Officer.
"The outlook remains negative to reflect Alam Sutera's maturity
wall, because all of its US-dollar notes will mature in 2021
and 2022," adds Poh. "The company is reliant
on external funding, but there are no committed funds to address
the refinancing risk."
In 2019, Alam Sutera achieved core marketing sales of around IDR2.2
trillion, and land sales to CFLD of IDR930 billion, which
were behind the company's full-year marketing sales target
of around IDR4 trillion. In 2020, Alam Sutera targets to
achieve core marketing sales of around IDR3.5 trillion, and
land sales to CFLD of IDR500 billion.
Absent land sales to CFLD, Moody's expects that Alam Sutera's credit
metrics will remain weak over the next 12-18 months. Leverage,
as measured by adjusted debt/homebuilding EBITDA, will stay elevated,
at more than 6.0x. Interest coverage, as measured
by homebuilding EBIT/interest expense, will stay below 2.0x.
For the 12 months ended 30 September 2019, Alam Sutera's leverage
registered 6.5x and interest coverage 1.6x.
Alam Sutera held cash and cash equivalents of IDR1.1 trillion as
of 30 September 2019. Moody's expects the company to generate around
IDR800 billion in cash from operations over the next 12-18 months,
which will be insufficient to cover the repayment of its 2021 notes.
Consequently, Alam Sutera is reliant on external funding to address
its notes maturity.
Alam Sutera has obtained consent from existing noteholders to incur up
to $185 million secured financing on 28 January 2020. At
the same time, the company shared that it is in discussion with
banks to raise secured Indonesian rupiah loan and investors to participate
in a private placement issuance, but none of these plans are committed.
In terms of environmental, social and governance factors,
Moody's has considered governance risk stemming from Alam Sutera's
(1) weak financial management, because of its debt maturity wall,
which resulted in significant refinancing risk; and (2) concentrated
ownership by its promoter and a five-member board of commissioners,
of which, only two members are independent. Nonetheless,
the company is run by experienced professionals and has a track record
of reducing land acquisitions to preserve liquidity.
Alam Sutera's B3 ratings reflect volatility in its earnings and cash flow,
driven by reliance on one-off transactions with CFLD, instead
of the company's core business of property development. Nonetheless,
Alam Sutera continues to generate strong gross profit margins in excess
of 50%, because of it large and low-cost land bank.
The ratings are 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.
Given the negative outlook, a ratings upgrade is unlikely over the
next 12-18 months. Nevertheless, the outlook could
return to stable if Alam Sutera (1) improves its liquidity by addressing
the refinancing risk of its 2021 and 2022 notes; and (2) continues
to execute its core marketing sales, such that adjusted homebuilding
EBIT/interest expense is above 1.0x.
Moody's could downgrade the ratings if (1) Alam Sutera is unable to address
the refinancing risk of its 2021 notes by April 2020; or (2) there
is a protracted weakness in the company's operations or a material depreciation
in the Indonesian rupiah, which could increase the company's debt
servicing obligations, such that adjusted homebuilding EBIT/interest
expense falls below 1.0x.
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 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. As of 31 December 2019, the family of The Ning
King owned around 47% of the company.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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
