JAKARTA (TheInsiderStories) – Toll road managers, PT Jasa Marga Tbk (IDX: JSMR) eyeing up to Rp2 trillion (US$142.86 million) from bond market to pay the company’ debt, the company said on Thursday (06/25). This year, the operator has a number of maturing debts with total amount Rp5 trillion.
Series JM-10 issued in 2010 will mature on Oct. 12, 2020 and have a principal amount of Rp1 trillion. Then, Komodo bonds listed on the London Stock Exchange since Dec. 13, 2017 will mature on Dec, 11, 2020 with worth of Rp4 trillion.
This week, Moody’s Investor Service downgraded Jasa Marga rating from Baa2 to Baa3 with outlook remains negative. The one-notch reduction considers the government’ increasingly selective approach towards supporting the state owned enterprises (SOEs) given its current fiscal position, and its comparatively lower strategic importance than other higher rated and more critical SOEs.
Moody’s expects the contraction in traffic volumes on its toll roads will weaken its cash-flow generation in 2020. Although the government has further eased social distancing measures, there is limited visibility on the subsequent recovery in Indonesian toll road volumes because of the unprecedented nature of the coronavirus outbreak.
The weaknesses in Jasa Marga’ financial profile have left it vulnerable to demand shifts under the current operating conditions. The company’ credit profile is reliant on prospective traffic growth for its toll roads in development or ramping up to strengthen its financial profile to pre-coronavirus levels.
Although it is seeking to reduce operating and capital expenditures in response to the pandemic, there may be limited opportunities to materially reduce capital expenditure in 2020. The toll managers is in discussions with bank lenders to re-profile bank debt servicing requirements to better align with cash flow at both the holding company and project levels during these uncertain times.
Moody’s understands from the company that these amendments to its bank loans are not aimed at avoiding default and that bank lenders have not suffered economic losses as a result of such actions. Jasa Marga continues to enjoy local bank and capital markets access, with successive drawdowns on liquidity facilities and local bonds continuing to trade near or above par value. The company is not engaged in any debt restructuring related to capital market instruments.
Recent regulatory actions amid the ongoing uncertainties associated with the coronavirus outbreak are also credit negative for Jasa Marga. Tariff adjustments for a number of its toll roads have been postponed. While the company is eligible for compensation for this delay, uncertainty remains around the form, amount and timing of the compensation.
Notwithstanding the more challenging operating environment in 2020, demand for Jasa Marga’ toll roads has historically been resilient, given continued economic growth and the favorable demographics of a growing middle class. Its liquidity in the coming 12 to 18 months is weak due to the negative cash flow impact of the coronavirus and committed capital expenditure payments.
The company also announced dividend payments amounting to around 5 percent of the previous year’ net profit, down from 15 percent the year before. As of the end of May 2020, Jasa Marga had approximately Rp2.8 trillion of cash on its balance sheet. Liquidity is supplemented by Rp24.4 trillion in undrawn committed credit facilities, of which Rp4.4 trillion expires over the next 12 months.
The operator is in talks with local banks to extend expiring facilities as well as to obtain more committed liquidity facilities. In addition, the company is assessing initiatives aimed at reducing its cost base and optimizing its investment spend, with the objective of further supporting its liquidity profile.
Given the reduction in earnings stemming from the more challenging operating environment, Moody’s expects that Jasa Marga will need to provide support to some of its subsidiaries or investments with project-level debt to avoid covenant breaches for such debt. The liquidity requirements are uncertain and are dependent on the extent of traffic declines and project-level financial reserves available.
Currently, one of its subsidiaries has a pre-existing covenant breach that is technical in nature and related to the financial covenants. Banks have waived the breach for 2019, and Moody’s is awaiting documentation on the waiver for 2020 and amendment to its financial covenants, which will prevent further breaches.
Jasa Marga is currently 70 percent owned by the government since and become a public company in 2007. As of December 2019, the company operated 1,168 kilometers (km) of toll roads across various parts of Indonesia, or 55 percent of all toll roads by length in operation.
In terms of total toll road concessions, it has the right to build, own and operate around 1,527 km of toll roads in total. The Indonesian Toll Road Authority (BPJT) is the regulator for the industry and the concession counter party for Jasa Marga.
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