JAKARTA (TheInsiderStories) – Fitch Ratings has downgraded property developer, PT Alam Sutera Realty Tbk‘ (IDX: ASRI) Long-Term Issuer Default Rating (IDR) to CCC- from B-. At the same time, the ratings on the company’ US$115 million notes due 2021 and $370 million notes due 2022, issued by its wholly owned subsidiary, Alam Synergy Pte. Ltd., have also been downgraded to CCC- from B-.
The Recovery Rating on the notes remains at ‘RR4′. All ratings were removed from Rating Watch Negative, on which they were placed on April 20. The downgrade reflects ASRI’ heightened liquidity risk from the company’s limited progress in securing refinancing for the $115 million bond, and the rising execution risk on its repayment options including securing additional bank loans or completing meaningful asset sales amid the pandemic-led economic downturn and disruption in capital and credit markets.
Alam Sutera announced on July 20, that it is planning to issue a new bond of up to $485 million to refinance the the debts, subject to shareholders’ approval at a general meeting planned for August 26. However, Fitch believes the transaction is subject to high execution risks.
“We believes ASRI faces a high level of refinancing risk on its $115 million unsecured notes in light of our forecast of weak cash generation and limited access to new debt amid tighter capital market conditions,” said the agency.
Alam Sutera reported attributable pre-sales fell 21 percent in annual basis (YoY) to Rp1 trillion ($68.96 million) in first half (1H) of 2020. Its believe the developer’ pre-sales and cash collections will remain muted in the next six to 12 months and therefore Fitch do not expect the company to have sufficient operating cash flows to meet the April 2021 bond maturity.
The agency believes ASRI’ access to capital markets and banks has tightened meaningfully amid the economic and financial turmoil. Volatility in the Indonesian rupiah has been significant in the year to date and investors in both offshore and onshore capital markets have become more selective.
Fitch also believes the domestic banks are likely to focus on preserving liquidity and prioritising higher-quality borrowers from less-cyclical sectors amid the current environment. The agency do not expect ASRI to be able to complete meaningful bulk land sales to China Fortune Development Co,. Ltd. (CFLD, BB-/Stable) in 2H 2020, which should lead to weaker cash flow from operations this year.
Alam Sutera‘ cash flows have historically benefitted from its partnership with CFLD, as it has sold around Rp1 trillion in land bank on average annually to CFLD in 2016-2019 in and around its Suvarna Sutera township in Pasar Kemis outside Jakarta. These sales helped to make up for slower pre-sales at the issuer’ other projects.
The company sold Rp200 billion in land to CFLD in 1H 2020 for Rp927 billion) and has collected the full proceeds as of today.
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