Singapore, April 08, 2020 -- Moody's Investors Service has downgraded the corporate family rating of
Modernland Realty Tbk (P.T.) to B3 from B2.
At the same time, Moody's has downgraded the backed senior unsecured
rating of the 2021 notes issued by JGC Ventures Pte. Ltd.
and the 2024 notes issued by Modernland Overseas Pte. Ltd.
to B3 from B2. Both JGC Ventures Pte. Ltd. and Modernland
Overseas Pte. Ltd. are wholly owned subsidiaries of Modernland
and the notes are guaranteed by Modernland and most of its subsidiaries.
The outlook on all ratings is changed to negative from stable.
RATINGS RATIONALE
"The downgrade reflects our expectation that a drop in demand for
residential properties and industrial land caused by the coronavirus outbreak
and slower economic growth will weaken Modernland's earnings and
credit metrics to levels no longer consistent with its B2 rating,"
says Jacintha Poh, a Moody's Vice President and Senior Credit Officer.
"The negative outlook reflects Modernland's increased refinancing
risk, as the company will likely be reliant on external funding
to address its 2021 maturity amid challenging market conditions for fund
raising," adds Poh.
Based on Moody's assumption that Modernland achieves marketing sales of
around IDR2.5 trillion in 2020, the company's credit metrics
will remain weak with adjusted debt/homebuilding EBITDA around 6.5x
and homebuilding EBIT/interest expense below 2.0x. For the
12 months ended 30 September 2019, Modernland recorded adjusted
debt/homebuilding EBITDA of 7.4x and homebuilding EBIT/interest
expense of 1.3x.
Modernland held cash and cash equivalents of IDR339 billion ($21
million) as of 30 September 2019. Moody's expects the company to
generate around IDR1 trillion in cash from operations between October
2019 and September 2021, which will be insufficient to cover the
repayment of its $150 million 2021 notes. Consequently,
Modernland will likely rely on external funding to address its notes maturity.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The property sector has
been one of the sectors affected by the shock given its sensitivity to
consumer demand and sentiment.
More specifically, the expected weakening in Modernland's credit
profile and its exposure to Indonesia have left it vulnerable to shifts
in market sentiment in these unprecedented operating conditions,
and the company remains vulnerable to the outbreak continuing to spread.
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety. Today's action reflects the impact on Modernland of
the breadth and severity of the shock, and the broad deterioration
in credit quality it has triggered.
Moody's has considered governance risk around Modern Group's
history of debt restructuring. Moody's has also considered the
founding family's concentrated ownership of Modernland, although
this risk is mitigated by the oversight exercised through the board which
for the majority consists of independent commissioners.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, a ratings upgrade is unlikely over the
next 12-18 months. Nevertheless, the outlook could
return to stable if Modernland (1) improves its liquidity by refinancing
its 2021 notes; and (2) continues to execute its core marketing sales,
such that adjusted homebuilding EBIT/interest expense stays above 1.0x.
Moody's could downgrade the ratings if Modernland is unable to refinance
its 2021 notes by August 2020.
Modernland Realty Tbk (P.T.) is an integrated property developer
in Indonesia that focuses on industrial town development, residential
development and township development. It also has small exposures
to the hospitality and commercial property segments. The company
listed on the Jakarta Stock Exchange in 1993, and is controlled
by the Honoris family through direct ownership and various holding companies.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating outcome
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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
Ian Lewis
Associate Managing Director
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
