JAKARTA (TheInsiderStories) – Fitch Ratings affirms that the property developer rating of PT Modernland Realty Tbk (MDLN) is in the restricted default and affirmed th C ratings on its US$150 million senior unsecured notes due in August 2021 and $240 million mature in April 2024. While, Moody’s affirmed the Ba2 backed senior unsecured rating on the 2024 bond issued by Pakuwon Prima Pte. Ltd., a wholly owned of PT Pakuwon Jati Tbk (IDX: PWON).
According to Fitch, the rating indicates an issuer has experienced an uncured payment default, but has not entered into bankruptcy filings and has not ceased operating. The affirmation of the rating is driven by missed coupon payments for its US dollar notes due in 2021 and 2024, and the company’s debt restructuring since December 2020.
The restructuring proposal features maturity extension, reduced coupon, and a bond buyback scheme via disposal of unencumbered assets. Modernland aims to complete the restructuring before the debt moratorium granted by the Singapore stock exchange ends on May 31, 2021.
Fitch rated, the debt restructuring is likely to limit the company’ ability to revive pre-sales and liquidity, as it may be perceived negatively by potential as well as existing buyers. Its reported around Rp400 billion in cancellations of past residential sales in 2020, and a 60 percent quarter-on-quarter drop in fourth quarter 2020 pre-sales, driving full-year pre-sales down 60 percent to Rp1.2 trillion (US$82.19 million). The company said that the cancellations have since eased and it expects a pre-sales recovery in 2021.
“We think a meaningful recovery in pre-sales will depend on whether the debt restructuring can be completed within the stipulated timeline, as well as Modernland‘ post-restructuring liquidity profile and capital structure,” wrote by Fitch.
While, Jacintha Poh, from Moody’s, noted, in 2020, Pakuwon Jati achieved Rp1 trillion in marketing sales, a 30 percent decline from 2019 because of weak demand and higher cancellations as a result of the pandemic. Nonetheless, based on quarterly data, sales picked up in the fourth quarter of 2020.
She expects marketing sales will improve to around Rp1.3 trillion in 2021 but remain lower than pre-pandemic levels. Nonetheless, Moody’s expects Pakuwon‘ total revenue will improve to Rp5.0 trillion in 2021 and Rp5.7 trillion in 2022, driven by a recovery in its recurring revenue.
In particular, reduced rent relief to tenants now that its malls have reopened and increased shopper traffic as large-scale social restrictions ease will support the company’s leasing income from its retail malls. The company’ cash acquisition of Hartono Mall Solo and Hartono Mall and Marriott Hotel Yogyakarta in November 2020 will also add to its recurring revenue.
As end of 2020, the company had cash and cash equivalents of Rp2.9 trillion. Moody’s expects Pakuwon will generate around Rp3.5 trillion of operating cash flow in 2021 and 2022, which will be more than sufficient to cover its debt obligations of around Rp450 billion, estimated dividend payment of around Rp500 billion and projected capital spending of around Rp4.3 trillion.
The property company, which is listed on the Indonesia Stock Exchange and controlled by the Tedja family, develops, manages and operates retail malls, office buildings, hotels, condominium towers and residential townships in Surabaya and Jakarta.
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