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
