PT Summarecon Agung Tbk (IDX: SMRA) has potential to reap Rp2.76 trillion (US$195.74 million) from the rights issue program - Photo by the Company

JAKARTA (TheInsiderStories) – The real estate company, PT Summarecon Agung Tbk (IDX: SMRA) has potential to reap Rp2.76 trillion (US$195.74 million) from the rights issue program, the management announced today (02/24). The issuer plans to release around 3.6 billion shares or equivalent to 25 percent of enlarged and paid-up capital.

The calculation, referring to the average price of the developer in the last 90 days at Rp768 a share. The fresh funding is expected to strengthen the capital structure of the company. The developer will seek the shareholders’ approval of the corporate action on April 1 and allowed to implement the program not more than 12 months.

For this year, Summarecon has budgeted a capital expenditure of Rp500 billion to support the marketing sales target of around Rp3.5 trillion or up 6 percent from 2020. According to the spokesman, Jemmy Kusnadi, the funds will be used to acquire land and develop investment properties.

In the fourth quarter of 2020, the property firm has collaborated with Toyota Housing Corporation Ltd., to work on Harumi Homes housing in Summarecon Emerald Karawang, West Java. This business alliance resulted in two Japanese-style healthy residential clusters.

Recently, Moody’s Investor Services, said the sharp deprecation in the Indonesian Rupiah against the US Dollar will weaken the debt servicing ability of property developers. According to tha analyst, Jacintha Poh, more than two-thirds of the companies’ aggregated debt is in US Dollars, while their revenue is earned in Rupiah.

“With the rupiah sliding about 15 percent to its weakest level since the 1998 Asian financial crisis, this high exposure to foreign currency debt is creating significant risk for the property developers at a time when the coronavirus outbreak is already weighing on earnings,” she stated.

While five out of the six rated developers have financial hedges to protect the principal sum of their US Dollar debt, these hedges only cover rupiah deprecation to certain levels, with around 57 percent of their American Dollar debt protected as of March 31. Moreover, the companies’ US Dollar interest expense is largely unhedged.

Combining the effects of weaker earnings and a higher debt burden, Moody’s expects the developers’ financial leverage – as measured by homebuilding debt or EBITDA – will deteriorate significantly in coming months. And if the Rupiah weakens further, only two out of the six developers would remain within the leverage thresholds for their ratings, namely PT Pakuwon Jati Tbk (IDX: PWON) (Ba2 stable) and Bumi Serpong Damai TbK (IDX: BSDE) (Ba3 stable).

The exposure among the property developers to the Rupiah’ weakness varies, with Moody’s sensitive testing showing that PT Alam Sutera Realty Tbk (IDX: ASRI) (Caa1 negative) and PT Modernland Realty Tbk (IDX: MDLN) (B3 negative) would be the most exposed if the Rupiah depreciates more. The property sector has been one of the sectors affected by the shock given its sensitivity to consumer demand and sentiment.

Summarecon was founded in 1975 by Soetjipto Nagaria and his partners to build and develop real estate. Starting with building 10 hectares of land in a swampy area in the Kelapa Gading area, the founders succeeded in transforming the area into one of the most prestigious residential and business areas in Jakarta.

US$1: Rp14,100

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