Singapore, June 22, 2020 -- Moody's Investors Service has downgraded the corporate family rating of
Modernland Realty Tbk (P.T.) ("Modernland") to Caa1 from
B3.
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 Caa1 from B3. 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 remains negative.
RATINGS RATIONALE
"The downgrade reflects our expectation that Modernland's cash flows
will fall significantly because of coronavirus-led disruptions,
such that the company will be reliant on external funds to cover ongoing
cash needs and debt maturities in 2020 and 2021," says Jacintha
Poh, a Moody's Vice President and Senior Credit Officer.
"The negative outlook reflects Modernland's heightened liquidity risk
amid challenging market conditions for fund raising," adds Poh.
Modernland held cash and cash equivalents of IDR554 billion ($37
million) as of 31 December 2019. Moody's expects the company to
have operating cash outflows of around IDR600 billion in 2020, leaving
it reliant on external funding to cover the cash flow gap and address
its IDR150 billion bond due July 2020 and $150 million bond due
August 2021.
Based on Moody's assumption that Modernland achieves marketing sales of
IDR1.5 trillion to IDR2.0 trillion in 2020, the company's
credit metrics will remain weak with adjusted debt/homebuilding EBITDA
above 9.0x and homebuilding EBIT/interest expense below 1.5x.
For the year ended 31 December 2019, Modernland recorded adjusted
debt/homebuilding EBITDA of 5.9x and homebuilding EBIT/interest
expense of 1.7x.
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 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.
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 is able to (1) generate sufficient operating
cash flow to cover basic cash needs; and (2) address the refinancing
risk of all debt maturities in 2020 and 2021.
Moody's could further downgrade the ratings if Modernland is unable to
address debt service requirements.
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.
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.
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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
Vikas Halan
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
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Singapore Land Tower
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