Singapore, March 20, 2018 -- Moody's Investors Service has downgraded the corporate family rating of
Matahari Putra Prima Tbk (P.T.) (MPPA) to B2 from B1.
At the same time, Moody's has changed MPPA's rating
outlook to negative from stable.
RATINGS RATIONALE
"The downgrade is due to MPPA's operating performance being
materially weaker than our previous expectations given its increased borrowings
and negative earnings, with credit metrics unlikely to improve in
the near term. As a result, MPPAs rating is more appropriately
positioned at the B2 level," says Maisam Hasnain, a
Moody's Analyst.
Aggressive price discounts to boost revenue growth, and one-time
expenses associated with cost reductions will temper MPPA's profitability
over the next 12-15 months, as the company embarks on a strategy
to revive its operating performance.
Because of its weaker earnings, Moody's expects that MPPA
will need to rely on incremental debt to fund its working capital needs
-- a considerable shift in strategy from previous years where MPPA
had limited reliance on bank debt to fund its operations. During
the third quarter of 2017, MPPA increased its reported debt by around
50% to IDR1.3 trillion to help fund its operations.
As a result, its adjusted leverage -- as measured by adjusted
debt to EBITDA -- increased to 6.7x for the 12 months ended
30 September 2017 from 4.4x in the previous quarter.
Moody's expects MPPA's leverage to remain around 5.5x
-- 6.5x over the next two years. Consequently,
MPPA's financial profile is no longer in line with Moody's expectations
for its B1 rating.
Moody's also expects MPPA to generate negative reported EBITDA for
the full year ended 31 December 2017. MPPA will therefore likely
not meet some of the financials maintenance covenants on its bank loans
when they are tested for the year ended December 2017.
However, Moody's expects that MPPA will obtain waivers from
its banks, given its established banking relationships, and
also because its debt on a reported basis is still only equivalent to
39% of its total book capitalization.
"While we expect MPPA to obtain covenant waivers from its banks,
a failure to do so will result in further negative rating action,"
adds Hasnain, who is also Moody's Lead Analyst for MPPA.
The negative outlook reflects MPPA's weakening liquidity position
despite its plans to complete its IDR802 billion rights issue by April
2018, with the proceeds used to primarily fund working capital.
However, despite the proceeds from the rights issue, Moody's
estimates that MPPA's cash sources will be insufficient to meet
all its cash needs through December 2018, primarily because the
majority of its working capital facilities come due in December.
Nevertheless, Moody's notes that MPPA has a track record of
renewing these facilities when they come due.
Based on the negative rating outlook, MPPA's rating will unlikely
be upgraded over the next 12-18 months. However, the
outlook could be revised to stable, if MPPA revives its operating
performance with sustained improvement in credit metrics, while
complying with its financial covenants and extending its debt maturities.
The rating could be downgraded if: (1) its strategies to revive
operational performance are unsuccessful; (2) the company delays
its rights issue plans or is unable to extend its debt maturities;
(3) MPPA shows evidence of cash leakage to fund affiliated companies;
or (4) MPPA adopts more aggressive shareholder return policies,
thereby weakening its liquidity position or causing it to incur additional
debt.
Credit metrics indicative of a rating downgrade include: (1) an
inability to reverse declining operating margins; (2) adjusted debt
to EBITDA above 6.5x; and (3) adjusted EBIT to interest below
1.0x on a sustained basis.
The principal methodology used in this rating was Retail Industry published
in October 2015. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Matahari Putra Prima Tbk (P.T.) (MPPA) is a leading retailer
in Indonesia with multiple retail formats. At 30 September 2017,
the company operated in more than 70 Indonesian cities through 117 Hypermarts,
25 Foodmarts, 31 Express stores, 108 Boston Health & Beauty
and 4 SmartClub wholesale outlets.
PT Multipolar Tbk, a holding company that owns majority stakes in
retail, technology, media, and real estate investment
companies in Indonesia and China, owns a 50.2% stake
in MPPA. Temasek Holdings (Private) Limited (Aaa stable),
through its subsidiary, Anderson Investment Pte. Ltd.,
has exchangeable rights in MPPA. If such rights are exchanged in
full, they represent a 26.1% stake in MPPA.
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.
Maisam Hasnain
Analyst
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
