Hong Kong — Moody’s Investors Service has affirmed the Caa3 corporate family rating (CFR) of MNC Investama Tbk. (P.T.) (BHIT) and the Ca rating on the senior secured rating notes issued by its wholly-owned subsidiary, Ottawa Holdings Pte. Ltd. (“Ottawa”), and unconditionally and irrevocably guaranteed by BHIT.
The outlook on the ratings remains negative. At the same time, Moody’s has also assigned a (P)Caa1 rating to the proposed million new senior secured notes due 2021 to be issued by BHIT.
The rating action follows BHIT’s announced exchange offer on 17 April 2018 – with respect to Ottawa’s $365 million 5.875% senior secured notes — of up to $250 million for new senior secured notes due 2021 and a cash tender payment.
BHIT is a listed investment holding company with core holdings in operating companies primarily in the Indonesian media and financial services sectors.
Through its 52.85% stake in PT Global Mediacom Tbk (BMTR), BHIT has a
62.84% stake in Media Nusantara Citra (P.T.) (MNCN), Indonesia’s leading
free-to-air broadcast company, and a 92.41% stake in MNC Sky Vision Tbk
(P.T.) (SkyVision), Indonesia’s leading pay-TV operator. BHIT also owns a 69.88% stake in PT MNC Kapital Indonesia Tbk (MKAP), a leading financial services company in Indonesia.
“BHIT’s proposed exchange is necessary as it does not have sufficient funds on its balance sheet to repay its maturing $365 million senior secured notes due 16 May 2018. If the exchange offer is completed as outlined, it will constitute a distressed exchange, which is an event of default under Moody’s definition of default,” says Annalisa DiChiara, Moody’s Vice President and Senior Credit Officer.
Upon the successful completion of the proposed transaction as outlined
such that the 2018 notes are fully repaid, BHIT’s CFR will likely be upgraded to B3, reflecting its improved debt maturity profile and expected interest coverage — based on dividends from operating subsidiaries – of at least 1.0x. The rating on the 2018 notes would also be withdrawn.
The (P)Caa1 rating on the proposed senior secured notes reflects the complex organizational and legal structure existent, and thus factors in
structural subordination, similar to the existing 2018 notes. As a holding company, BHIT is entirely reliant on dividends.
The claims of BHIT’s creditors on the assets and cash flows of BHIT’s
operating units are subordinate to those of the direct creditors of the operating units, as the majority of the group’s debt is incurred at the
operating unit level with dividends up-streamed from key operating assets
to service its obligations.
According to the company’s announcement, holders of the 2018 notes will
be eligible to receive an exchange consideration of $880 in principal amount of new notes and $120 of cash for each $1,000 in principal amount of the 2018 notes.
A shareholder loan of $30 million and BHIT’s existing cash and sale of marketable securities will provide funds necessary for the cash portion
of the exchange offer and the redemption of the holdings of non-participating bondholders.
The shareholder loan is expected to convert into equity upon satisfaction of certain conditions, including the successful completion of the exchange offer. The shareholder loan will be non-interest bearing and will remain deeply subordinated until conversion.
Prior to the commencement of the exchange offer, in a separately privately negotiated transaction, BHIT and the holder of an aggregate $115 million of the existing 2018 senior secured notes agreed to convert initially into subordinated debt of the company, which will remain deeply subordinated and be non-interest bearing.
This debt will be subsequently converted into the capital stock of BHIT, upon satisfaction of certain conditions, including the successful completion of the exchange offer for the remaining balance of the existing 2018 senior secured notes.
Under the terms, BHIT will issue new shares to the converting holder on
or before 30 September 2018.
“Although, the proposed exchange will ultimately reduce debt levels and
extend the debt maturity profile to 2021 at the holding company level, its liquidity position will remain fragile, reflecting its reliance on dividends from subsidiaries — primarily MNCN – to satisfy its cash obligations, including interest expenses on the proposed notes and operating costs,” adds DiChiara, also Moody’s lead analyst for BHIT.
MNCN is Indonesia’s leading free-to-air broadcast company and contributes
around 52% and 75% of the BHIT’s consolidated revenues and EBITDA,
respectively, providing an anchor for BHIT’s credit profile. It is also the primary source of dividend income for BHIT.
BHIT’s organizational structure is complex with its holdings in the operating companies in the media sector held through an intermediary holding company — BMTR — which is 52.85% owned. BMTR’s 62.84% stake in MNCN means BHIT’s economic interest in MNCN is only around 33%.
Although Moody’s financial analysis of BHIT considers its consolidated financial position, we also analyze BHIT as a holding company and its ability to utilize dividend income to service its debt obligations. Based on this analysis and our assumptions for dividend receipts from MNCN, we forecast dividend/interest cover of approximately 1.0x
At the same time, BHIT’s credit profile continues to reflect the credit
quality and risk factors associated with its other strategic assets and
portfolio investments outside of the core media business, including
Indonesian financial services, energy and real estate sectors.
In our view, the non-media-related businesses, separately and collectively, have weaker market positions, lower margins and higher associated cash flow volatility, which translate into higher business and financial risks for BHIT.
BHIT is a listed investment holding company in Indonesia with core holdings in operating companies primarily in the Indonesian media and financial services sectors. The company also holds other strategic subsidiary and portfolio investments in the Indonesian property development and mining sectors.