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Rating Action:

Moody's downgrades MNC Investama's CFR to Caa1, senior secured bond to Caa2; outlook still negative

09 Aug 2019

Hong Kong, August 09, 2019 -- Moody's Investors Service has downgraded the corporate family rating (CFR) of MNC Investama Tbk. (P.T.) (BHIT) to Caa1 from B3.

At the same time, Moody's has downgraded BHIT's senior secured rating to Caa2 from Caa1.

The ratings outlook remains negative.

Through its 48.95% stake in P.T. Global Mediacom Tbk (BMTR, unrated), BHIT has significant stakes in media operating companies, P.T. Media Nusantara Citra Tbk (MNCN, unrated) — Indonesia's (Baa2 stable) leading free-to-air (FTA) broadcast company — and P.T. MNC Vision Networks Tbk (IPTV, unrated), a leading broadband and pay-TV operator in Indonesia.

RATINGS RATIONALE

"The downgrade of BHIT's CFR to Caa1 reflects increasing refinancing risk — particularly at the holding company level — as BHIT's May 2021 bond maturity draws closer and dividend income from its subsidiaries remains low," says Annalisa Di Chiara, a Moody's Vice President and Senior Credit Officer.

As a holding company, BHIT generates a limited amount of operational cash flow aside from dividend income.

However, over the last 12 months BMTR has paid just IDR69 billion of dividends which translated into dividend income for BHIT of around IDR35-IDR40 billion based on its ownership stake; a level that is insufficient to cover annual interest expense on BHIT's bond of around USD10 million.

"We believe dividend income at BHIT will remain limited over the next 12 to 18 months, as its key media operating subsidiaries — including BMTR, MNCN and IPTV — address upcoming debt maturities, ongoing amortization payments and focus on their own shareholder initiatives," adds Di Chiara, who is also Moody's Lead Analyst for BHIT.

BHIT's liquidity position, on a standalone basis, will remain weak. As such, Moody's anticipates that the repayment of BHIT's bond in May 2021 will depend on capital raising activities, the timing of which is unclear and ultimately market sensitive.

While dividend income will likely be insufficient to cover interest expense on BHIT's bond, management has confirmed to Moody's that a portion of short-term investments held at the holding company can be monetized as needed to support interest payments.

In addition, according to BHIT's offering circular, the company is required to maintain a debt service reserve account (DSRA) equal to one semi-annual interest payment. According to BHIT's latest quarterly financial report, the DSRA was fully funded as of 30 June 2019. The next interest payment of USD10 million is due in November 2019.

BHIT's Caa1 CFR continues to reflect the stable operating performance of its key media operating subsidiaries, particularly MNCN — held through its stake in BMTR — with MNCN contributing a majority of BHIT's consolidated EBITDA. The CFR also considers the credit profiles of its non-media related businesses -- which separately and collectively -- have weaker market positions, lower margins and higher associated cash flow volatility.

BHIT's complex organizational and legal structure — both factors of which raise concerns over transparency with respect to shareholders' intentions and corporate governance —have also been incorporated in the company's ratings. In particular, related-party transactions and holdings - including cash, financial assets and investments -- are material.

The ratings outlook is negative, reflecting the company's weak liquidity position on a standalone basis. Debt service requirements or shareholder initiatives at the subsidiary level could continue to limit the subsidiaries' ability or willingness to upstream dividends to BHIT, ultimately increasing refinancing risk, as the 2021 bond maturity draws near.

Given the negative ratings outlook, an upgrade is unlikely.

Nevertheless, the outlook on the ratings could return to stable if BHIT's liquidity position — on a standalone basis — improves materially and a refinancing plan for its 2021 bond is finalized in a timely manner.

Moody's could downgrade the ratings if BHIT or its subsidiaries are unable to address debt service requirements in a timely manner.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Jakarta, MNC Investama Tbk. (P.T.) (BHIT) is a listed investment holding company, with strategic investments in operating companies in media, financial services, energy and real estate.

In addition to P.T. Media Nusantara Citra Tbk and P.T. MNC Vision Networks Tbk, BHIT's other operating companies include P.T. MNC Kapital Indonesia Tbk and P.T. MNC Land. The company also has portfolio investments in other private and public companies operating in transport, infrastructure and other industries.

BHIT is controlled by Mr. Hary Tanoesoedibjo.

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The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Annalisa Di Chiara
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
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 Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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