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Related Research
Rating Action:

Moody's reviews Alam Sutera's ratings for downgrade; downgrades existing bond ratings to Caa3

29 Sep 2020

Singapore, September 29, 2020 -- Moody's Investors Service has placed on review for downgrade the Caa1 corporate family rating (CFR) of Alam Sutera Realty Tbk (P.T.) (Alam Sutera).

Moody's has also downgraded the backed senior unsecured rating of the 2021 notes and 2022 notes issued by Alam Synergy Pte. Ltd., a wholly owned subsidiary of Alam Sutera, to Caa3 from Caa1 and placed the ratings on review for further downgrade. The notes are guaranteed by Alam Sutera and most of its subsidiaries.

At the same time, Moody's has assigned a (P)Caa1 rating to the proposed 2024 and 2025 senior secured notes to be issued by Alam Sutera and placed them on review for downgrade. The proposed notes are guaranteed by most of Alam Sutera subsidiaries and will be secured by a mortgage over the Mall@Alam Sutera land lot and a commercial land lot.

The outlook has been changed to ratings under review from negative.

The rating actions follow Alam Sutera's announcement on 29 September 2020 of an exchange offer for its outstanding US dollar bonds, namely its $115 million 11.5% bonds due April 2021 and $370 million 6.625% bonds due April 2022. All of the 2021 bonds will be exchanged for new 2024 bonds, while 25% of the 2022 bonds will be exchanged for new 2024 bonds and the remaining 75% for new 2025 bonds. The exchange offer will only be successful if 85% of both the 2021 and 2022 bondholders choose to participate.

"The corporate family rating has been placed on review for downgrade to reflect the likelihood that the rating will be downgraded by multiple notches should less than 85% of bondholders participate in the exchange offer. The company's current capital structure is not sustainable and is exposed to increased refinancing risk associated with Alam Sutera's 2021 notes, as the company is reliant on external funding but has been unable to secure committed funds to meet the debt maturity," says Jacintha Poh, a Moody's Vice President and Senior Credit Officer.

"The downgrade of the existing bond ratings reflects our expectation of significant economic loss to the existing bondholders even if the exchange offer is successful. The economic loss could be higher in absence of the exchange offer, a possibility incorporated in a further review for downgrade," adds Poh.

RATINGS RATIONALE

Moody's views the exchange offer as a distressed exchange because the transaction allows Alam Sutera to avoid an eventual default on its US dollar notes since the company does not have sufficient funds to address the maturity in April 2021. The transaction will also result in significant economic loss for investors when compared to the original payment promise for the notes.

Assuming 85% of bondholders choose to participate in the exchange offer, Alam Sutera could be left with around $17.25 million of the 2021 bonds and $55.5 million of the 2022 bonds. In this scenario, Alam Sutera's impending refinancing risk will improve but not be eliminated because of the $55.5 million coming due in April 2022.

Moody's estimates Alam Sutera would have sufficient cash to repay the $17.25 million due April 2021. As of 30 June 2020, the company held cash and cash equivalents of around IDR1,118 billion ($77 million). This cash balance is also sufficient to cover Moody's expectation of approximately IDR250 billion of operating cash outflow and around IDR200 billion in capital spending over the next 18 months.

Moody's expects Alam Sutera's financial metrics will weaken in 2020 and stay weak in 2021, driven by a reduction in land sales. Leverage, as measured by debt/homebuilding EBITDA will be around 15.0x in 2020 and 10.0x in 2021 while EBIT interest coverage will be less than 1.5x in 2020-21. For the 12 months ended 30 June 2020, Alam Sutera had leverage of 4.7x and EBIT interest coverage of 1.9x.

In terms of environmental, social and governance (ESG) factors, Moody's has considered the governance risk stemming from Alam Sutera's (1) weak financial management, as its debt maturity wall has resulted in significant refinancing risk and the proposed exchange offer; and (2) concentrated ownership by its promoter as well as its five-member board of commissioners, of which only two members are independent. Nonetheless, the company is run by experienced professionals and has a track record of reducing capital spending to preserve liquidity.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The review will focus on the completion of the exchange offer. Moody's could affirm Alam Sutera's CFR at Caa1 if the exchange offer is successful resulting in an improvement in company's capital structure with manageable refinancing risk over the next 12-18 months.

On the other hand, Moody's could downgrade Alam Sutera's CFR if the exchange offer is not successful. Moody's could also further downgrade the senior unsecured ratings on the existing 2021 and 2022 bonds if there is a likelihood that the expected losses will be higher than those implied by the Caa3 rating.

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.

Established in November 1993 and listed on the Indonesian Stock Exchange in December 2007, Alam Sutera Realty Tbk (P.T.) is an integrated property developer in Indonesia that focuses on the sale of land lots in accordance with township planning requirements, as well as property development in residential and commercial segments in Indonesia. As of 31 December 2019, the family of The Ning King owned around 47% of the company.

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.

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

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.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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