Hong Kong, May 08, 2018 -- Moody's Investors Service has upgraded the Corporate Family Rating (CFR)
of MNC Investama Tbk. (P.T.) (BHIT) to B3 from Caa3.
At the same time, Moody's has assigned a definitive Caa1 rating
to BHIT's USD231 million 9% senior secured notes due 11 May
2021.
The outlook is negative.
The rating action follows the completion of the exchange offer launched
on 17 April 2018 -- with respect to the USD365 million 5.875%
senior secured notes of Ottawa Holdings Pte. Ltd (Ottawa),
a wholly owned BHIT subsidiary -- of up to USD250 million
for new senior secured notes due 2021 and a cash tender payment.
The company announced that USD186 million of notes had been exchanged,
or around 74% of the USD250 million offered. Bondholders
holding around USD64 million have not consented to the exchange.
In conjunction with the exchange completion, BHIT and the holder
of an aggregate USD115 million of the existing 2018 senior secured notes
have agreed initially on a conversion into subordinated debt, which
will remain deeply subordinated and be non-interest bearing.
BHIT will then issue new shares to the converting holder on or before
30 September 2018.
As a result, in aggregate, the company will issue USD231 million
senior secured notes which - together with the USD115 million subordinated
debt and cash - will be used to redeem the maturing $365
million senior secured notes issued by Ottawa.
Moody's has assessed the transaction as comprising a distressed exchange
and a default due to the extension of the maturity date beyond its initial
terms as well as the conversion of a portion of the notes into subordinated
debt and ultimately equity. Moody's definition of default is intended
to capture events whereby issuers fail to meet the debt service obligations
outlined in their original debt agreements.
RATINGS RATIONALE
"The upgrade of BHIT's rating to B3 reflects the successful
completion of the exchange transaction such that the 2018 notes will be
fully repaid and reflects the improved debt maturity profile of the company
on a standalone basis," says Annalisa DiChiara, a Moody's
Vice President and Senior Credit Officer.
However, although, the transaction extends BHIT's debt
maturity profile to 2021 on a standalone basis, its liquidity position
will remain fragile, reflecting its reliance on dividends from subsidiaries
- primarily PT Media Nusantara Citra Tbk (MNCN) - to satisfy
its cash obligations, including interest expenses on the proposed
notes and operating costs.
MNCN is Indonesia's leading free-to-air broadcast company
and contributes around 52% and 75% of the BHIT's consolidated
revenues and EBITDA, respectively. MNCN's defensible
market position and stable cash flow provide an anchor for BHIT's credit
profile as it is also the primary source of dividend income for BHIT.
"That said, concerns around BHIT's capital structure
-- including its high leverage and ability to meet its debt service
obligations -- remain. We expect liquidity at the holding
company level to remain weak, with little cash buildup because we
expect dividends received from subsidiaries to just meet interest expense
over the next 12-24 months," adds DiChiara, also
Moody's lead analyst for BHIT.
However, the company will fund a debt service reserve account -
equal to one semi-annual interest payment - from the proceeds
of the 2021 notes.
In addition, BHIT's subsidiaries have large amortization payments
or debt maturities, or both, over the next one to two years
raising refinancing risks and pressuring cash flow generation which may
ultimately their ability to upstream dividends to BHIT.
As a result, BHIT will rely on inorganic measures, namely
planned asset sales and the monetization of stakes in subsidiaries,
to support its standalone liquidity, and provide cash to ultimately
repay the new notes in 2021.
BHIT's organizational and legal structure is also complex and raises concerns
regarding transparency with respect to shareholder intentions and corporate
governance, which is also taken into account in the rating.
The Caa1 rating on the senior secured notes reflects the company's
complex organizational and legal structure, and thus factors in
structural subordination. As a holding company, BHIT is entirely
reliant on dividends. The claims of BHIT's creditors on the assets
and cash flows of its operating units are subordinate to those of the
direct creditors of the operating units, as the majority of the
group's debt is incurred at the operating unit level with dividends being
up streamed from key operating assets for servicing its obligations.
The outlook is negative, reflecting the BHIT's weak liquidity
position, given its holding company position and reliance on dividends.
It also considers BHIT's high leverage - as measured by debt/EBITDA
on a consolidated basis -- of over 5x .
Moreover, amortization payment requirements and refinancing risks
at subsidiaries level may ultimately limit their ability or willingness
to upstream dividends to BHIT, further impairing its already weak
interest coverage and liquidity position.
To that end, should the coverage of cash dividends received from
its operating companies to interest expenses at the holding company level
fall below 1.0x, the ratings will be downgraded.
An inability to execute the planned asset sale within 12 months would
result in a rating downgrade. Finally, if the subsidiaries
are unable to address debt maturities in a timely manner -- including
Sky Vision's bank loan maturing in November 2019 - will also
result in a rating downgrade.
Given the negative outlook, an upgrade is unlikely. However
the ratings outlook could return to stable if the company executed on
asset sales such that liquidity at the holding company improves materially.
In addition, we would look for BHIT to sustain dividends/interest
coverage of at least 2.0x on a standalone basis as well as establish
a track record of executing its refinancing requirements at the operating
company level on a timely basis.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Headquartered in Jakarta, MNC Investama Tbk. (P.T.)
(BHIT) is a listed investment holding company with core holdings in operating
companies primarily in the Indonesian media and financial services sectors.
Through its 52.85% stake in PT Global Mediacom Tbk (BMTR),
BHIT has a 62.84% stake in PT Media Nusantara Citra Tbk
(MNCN), Indonesia's leading free-to-air broadcast
company, and a 92.41% stake in PT MNC Sky Vision Tbk,
Indonesia's leading pay-TV operator. BHIT also owns a 69.88%
stake in PT MNC Kapital Indonesia Tbk (MKAP), a leading financial
services company in Indonesia
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.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Annalisa Di Chiara
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
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 Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
