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Singapore — Moody’s Investors Service has today confirmed Matahari Putra Prima Tbk (P.T.)’s (MPPA) corporate family rating (CFR) at B3. The rating action concludes Moody’s review for downgrade initiated on 5 April 2018. The rating outlook is negative.

Moody’s will withdraw the rating for its own business reasons.

RATINGS RATIONALE

“The rating confirmation at B3 reflects MPPA’s improved liquidity to support near-term operations, once it completes its IDR807 billion rights issue,” says Maisam Hasnain, a Moody’s Analyst.

On 28 June 2018, MPPA obtained regulatory approval to conduct an IDR807
billion rights issue. The company expects to complete the rights issue before 1 August, with the proceeds used primarily to fund working capital.

In an earlier press release issued on 5 April, MPPA stated that its largest shareholder, the Lippo Group, will serve as a standby buyer and underwriter for the entire rights issue.

While Moody’s estimates MPPA’s cash balance as of March 2018 and proceeds
from its rights issue will be insufficient to cover its IDR1.24 trillion of short-term debt, refinancing risk is mitigated, given MPPA’s track record of renewing these facilities when they come due, despite weaker operating performance since 2017.

For example, in 1Q 2018, MPPA extended its IDR250 billion facilities with
PT Bank CIMB Niaga Tbk by one year to December 2019. And, in January
2018, MPPA extended its IDR300 billion facility with Bank of China (Hong
Kong) Limited by one year to January 2019.

Given negative reported EBITDA generation in 2017, MPPA was unable to
meet some of its financial maintenance covenants for the year ended December 2017. In its March 2018 financials, MPPA disclosed it had obtained waivers from all but one bank.

MPPA has confirmed that it obtained covenant waivers from its remaining
bank in May. Absent a material upturn in operating performance, Moody’s
estimates MPPA will likely require covenant waivers for the year ended
December 2018.

The rating outlook is negative, reflecting Moody’s expectation that MPPA’s credit metrics will not materially improve over the next 9-12 months, as the company executes its transformation strategy to revive operations, which includes steep price discounts and inventory rationalization.

Matahari Putra Prima Tbk (P.T.) (MPPA) is a leading retailer in Indonesia, with multiple retail formats. At 31 December 2017, the company operated in more than 70 Indonesian cities through 113 Hypermarts, 25 Foodmarts, 15 Express stores, 102 Boston Health & Beauty and four SmartClub wholesale outlets.

PT Multipolar Tbk, a holding company that owns majority stakes in retail,
technology, media, and real estate investment companies in Indonesia and
China, owns a 50.2% stake in MPPA.

Temasek Holdings (Private) Limited (Aaa stable), through its subsidiary,
Anderson Investment Pte. Ltd., has exchangeable rights in MPPA. If such
rights are exchanged in full, they represent a 26.1% stake in MPPA.

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