Singapore, April 05, 2018 -- Moody's Investors Service has downgraded the corporate family rating for
Matahari Putra Prima Tbk (P.T.) (MPPA) to B3 from B2.
At the same time, Moody's has placed MPPA's B3 corporate
family rating on review for further downgrade.
RATINGS RATIONALE
"The downgrade reflects the heightened liquidity risk and reduced
financial flexibility given MPPA's non-compliance with some
covenants, combined with weaker than expected operating performance,
large near-term debt maturities, and limited availability
to draw down further under its existing debt facilities,"
says Maisam Hasnain, a Moody's Analyst.
With negative earnings and increased debt, MPPA's credit profile
has continued to weaken as it executes on a transformation strategy to
revive operations, which include steep price discounts and inventory
rationalization. However, the potential benefits from its
strategy are yet to be realized.
"The rating remains on review for downgrade given the potential
for MPPA's liquidity and credit metrics to deteriorate further,
following its announcement to delay its planned rights issue,"
adds Hasnain, also Moody's Lead Analyst for MPPA.
MPPA previously planned to complete an IDR802 billion rights issue by
April 2018 to primarily fund working capital. However, Moody's
understands that the rights issue will likely be delayed by up to two
months, because MPPA plans to use its full year 2017 financials
in its rights issue prospectus. This is the second time that MPPA
has delayed its rights issue.
"In the absence of rights issue proceeds, we expect MPPA will
need to rely on incremental debt to fund its operations. As a result,
MPPA's adjusted leverage -- as measured by adjusted debt to
EBITDA -- will increase to around 7.0x-8.0x
by the end of 2018. Such leverage levels cannot support MPPA's
B3 rating," adds Hasnain.
Moody's also expects that MPPA's liquidity position will further
weaken should the rights issue be delayed, because MPPA's
projected cash from operations will likely remain negative through 2018.
Even with proceeds of IDR802 billion from its planned rights issue,
Moody's estimates that MPPA will not have sufficient cash to fund
its operations, scheduled debt maturities and capital spending through
December 2018, because the majority of MPPA's 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. For example, in January 2018, MPPA extended its
IDR300 billion facility with Bank of China (Hong Kong) Limited by one
year to January 2019.
An inability to extend its next debt maturity: specifically,
a IDR195 billion working capital facility due in May 2018 would suggest
a further reduction in financial flexibility.
MPPA has obtained waivers from all but one bank, and is in the process
of obtaining a waiver from the remainin bank, following its inability
to meet some of its financial maintenance covenants for the year ended
December 2017. While Moody's expects that MPPA will obtain
all waivers before it releases its next quarterly financial results,
a failure to do so will result in further negative rating action.
Moody's review will focus on MPPA's ability to: (1) complete
its IDR802 billion rights issue by June 2018; (2) obtain covenant
waivers from one remaining bank and (3) extend its next debt maturity.
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 31 December 2017,
the company operated in more than 70 Indonesian cities through 113 Hypermarts,
25 Foodmarts, 15 Express stores, 102 Boston Health & Beauty
and four 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