JAKARTA (TheInsiderStories) – Indonesia’ toll operator, PT Hutama Karya offers global medium term notes (GMTN) up to US$1.5 billion. The notes get (P)Baa2 rating from Moody’s Investors Service.
At the same time, the agency has assigned a Baa2 senior unsecured rating to the proposed US Dollar bond issuance under the GMTN program. The program and bond ratings will benefit from an unconditional and irrevocable guarantee from the government of Indonesia (Baa2 stable).
The rating assigned to the GMTN program and the proposed bond are in line with Indonesia’ sovereign rating, reflecting the government’ unconditional and irrevocable guarantee. The rating on the guaranteed bond is likely to remain aligned with the sovereign rating and will be affected by negative or positive rating developments at the sovereign rating level.
HK has been assigned as the sole developer and operator of the Trans-Sumatra Toll Roads, which will help transform its business profile from predominantly construction company to the country’s largest toll roads operator. Upon completion, the projects will be the longest toll road in Indonesia.
Reflecting the importance of the Trans-Sumatra project to the Indonesian government, the government also guarantees all debt pertaining to the Trans-Sumatra project, which accounted for 78 percent of the company’ outstanding debt as of December 2019.
The rating also reflects Moody’s expectation that the company will benefit from the Indonesian government’ initiatives to accelerate infrastructure development in the country. The state budget allocation for infrastructure more than doubled to Rp340 trillion in 2019 from Rp178 trillion in 2014, and is set to increase a further 4.9 percent to Rp419 trillion in 2020.
However, Hutama Karya’ standalone credit strength is constrained by the significant capital spending required for the Trans-Sumatra project over next 5 – 6 years, and the inherent cyclicality in the construction industry. As such, any project delays or cost overruns could adversely impact HK’ credit profile.
Moody’s could downgrade the construction’ rating if it bids aggressively to win new contracts, resulting in a considerable deterioration in its financial profile, it experiences a substantial decline in new contracts wins, or it incurs large cost overruns and project delays.
A downgrade of Indonesia’ sovereign rating would result in a downgrade of the company’ rating. Furthermore, a reduction in the government’ shareholding or perceived support could lead to a downgrade of HK.
The company’ key business segments are infrastructure, industry and engineering, procurement and construction (EPC), property investment and realty. The company reported revenues of Rp26.4 trillion (US$1.70 billion) and an order book of Rp58.9 trillion (2.2x revenues) as of December 2019.
Established in 1961, Hutama Karya is one of the largest EPC in Indonesia by revenue. The operator is 100 percent owned by the Government of Indonesia through the ministry of state own enterprises.
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