Housing complex owned by PT Alam Sutera Realty Tbk

JAKARTA (TheInsiderStories) – Moody’s Investors Service has affirmed
the B2 corporate family rating of Alam Sutera Realty Tbk (P.T.) and
affirmed the B2 backed senior unsecured rating of the 2020 notes and 2022
notes issued by Alam Synergy Pte. Ltd., a wholly owned subsidiary of the company.

The notes are guaranteed by Alam Sutera and most of its
subsidiaries. Moody’s has also changed the outlook on the ratings above to negative from stable.

RATINGS RATIONALE

The negative outlook on Alam Sutera’s ratings reflect Moody’s expectation
that the company’s liquidity will weaken significantly over the next
12-18 months, owing to the maturity of its $235 million notes in March
2020.

“Alam Sutera faces impending refinancing risk because the company does
not have any concrete plans to address the maturity of its 2020 notes,”
says Jacintha Poh, a Moody’s Vice President and Senior Analyst in their latest report released on Wednesday (12/09).

“Furthermore, the current market conditions — namely a weaker Indonesian
rupiah and higher interest rates — will prove challenging for Alam
Sutera’s refinancing efforts,” adds Poh.

Alam Sutera held cash and cash equivalents of IDR904 billion at 30 June
2018. While Moody’s expects the company to generate IDR1.0-IDR1.7
trillion in cash from operations over the next 12-18 months, Alam Sutera
will not accumulate sufficient cash to cover the repayment of its 2020
notes.

Consequently, Alam Sutera will need to refinance its 2020 notes, which is
equivalent to around IDR3.5 trillion and showed a yield-to-maturity of
around 11% at 11 September 2018 compared to around IDR2.3 trillion and
around 7% at issuance in March 2013.

Alam Sutera’s operating performance remains healthy, supported by: (1)
continued execution of land sales to China Fortune Land Development Co.,
Ltd (CFLD); (2) a strong take-up rate of more than 90% at the launch of
its new residential project, Lloyds in Alam Sutera township; and (3) the
sale of commercial land at Alam Sutera township. These contributed around
IDR2.4 trillion of the company’s total marketing sales of IDR3 trillion
for the first half of 2018.

Alam Sutera is tracking ahead to meet its full year marketing sales target
of around IDR4 trillion and will likely exceed Moody’s expectation of
IDR3.3 trillion.

However, Moody’s expects the company’s financial metrics will likely
weaken over the next 12-18 months — with adjusted debt/homebuilding
EBITDA registering around 3.9x and homebuilding EBIT/interest expense at
around 3.0x — owing to higher debt-funded capital spending, weaker
Indonesian rupiah against the US dollar and higher cost of debt.

For the 12 months ended 30 June 2018, Alam Sutera’s adjusted
debt/homebuilding EBITDA registered 3.2x and homebuilding EBIT/interest
expense was at around 3.8x.

Alam Sutera’s B2 ratings reflect the company’s ownership of a large and
low-cost land bank, a situation which has allowed it to generate strong
gross profit margins exceeding 50%. The ratings also take into account
the increased volatility in Alam Sutera’s earnings and cash flow over the
last two years, driven by larger contributions from one-off transactions
instead of income from the company’s core business of property
development.

The ratings are constrained by Alam Sutera’s small scale and limited
geographic diversity. The company is also exposed to the cyclical
property sector, with limited contributions from the more stable,
recurring income stream from its investment properties.

Given the negative ratings outlook, Moody’s will unlikely upgrade Alam
Sutera’s ratings over the next 12-18 months.

Nevertheless, the ratings outlook could return to stable if the company:
(1) successfully refinances its $235 million bond due March 2020; (2)
continues to execute its business plans, in particular, its land sales to
CFLD; and (3) continues to maintain stable financial metrics, such that
adjusted debt/ homebuilding EBITDA is below 5.0x and adjusted
homebuilding EBIT/interest expense is above 2.0x.

Moody’s could downgrade the ratings if Alam Sutera’s financial and
liquidity profiles weaken owing to: (1) company’s inability to
proactively address the refinancing its $235 million bond due March 2020;
(2) failure to execute its business plans, in particular, its land sales
to CFLD; (3) a deterioration in the property market, leading to a
protracted weakness in its operations; and (4) a material depreciation in
the Indonesian rupiah, which may increase the company’s debt servicing
obligations.

Metrics indicative of downward ratings pressure include: (1) adjusted
debt/homebuilding EBITDA exceeding 5.0x; (2) adjusted homebuilding
EBIT/interest expense falling below 2.0x; or (3) insufficient cash to
cover short-term debt obligations.

Established in November 1993 and listed on the Indonesian Stock Exchange
in December 2007, Alam Sutera Realty 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.

At June 30, 2018, the company was approximately 47%-owned by the family of The Ning King.

Written by Staff Editor, Email: theinsiderstories@gmail.com

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