Bank Indonesia estimated the residential property prices getting slower until September of 2020 - Photo by Alam Sutera Realty

Singapore (TheInsiderStories) — Moody’s Investors Service has assigned a backed senior unsecured rating of B2 to the proposed senior unsecured notes to be issued by Alam Synergy Pte. Ltd. The proposed notes are guaranteed by Alam Sutera Realty Tbk (P.T.) (B2 negative) and most of its subsidiaries and rank pari passu with the 2020 notes and 2022 notes.

The rating outlook is negative. Alam Sutera will use the net proceeds from the proposed issuance towards partial refinancing of its 2020 notes and general corporate purposes.


“The rating on the notes is in line with Alam Sutera’s B2 corporate
family rating, as the proposed notes are not exposed to either legal or structural subordination risk,” says Jacintha Poh, a Moody’s Vice
President and Senior Credit Officer in a written statement today (01/11).

At Oct. 31, 2018, 89% of Alam Sutera‘s total debt was unsecured, and the majority of Alam Sutera’s borrowings were at the holding company. Furthermore, the notes are guaranteed by all major subsidiaries.

“The successful issuance of the proposed notes would be credit positive,because it will improve Alam Sutera’s liquidity, and partially address the company’s refinancing risk,” adds Poh, who is also Moody’s Lead Analyst for Alam Sutera.

Alam Sutera held cash and cash equivalents of IDR408 billion ($27
million) at 31 October 2018. While Moody’s expects the company to
generate around IDR1.7 trillion in cash from operations in 2019, Alam Sutera will not accumulate sufficient cash to cover the repayment of its $235 million notes in March 2020.

Moody’s expects Alam Sutera’s adjusted debt/homebuilding EBITDA will remain around 3.5x in 2019 while the company’s homebuilding EBIT/interest expense will weaken to around 3.3x from 3.6x for the 12 months ended Sept. 30, 2018.

Alam Sutera’s B2 ratings reflect the company’s ownership of a large and low-cost land bank, a situation which has allowed it to generate strong gross profit margins exceeding 50%. The ratings also take into account the increased volatility in Alam Sutera’s earnings and cash flow over the last two years, driven by larger contributions from one-off transactions instead of income from the company’s core business of property development.

The ratings are constrained by Alam Sutera’s small scale and limited
geographic diversity. The company is also exposed to the cyclical
property sector, with limited contributions from the more stable,
recurring income stream from its investment properties.

The negative outlook on Alam Sutera’s ratings reflect Moody’s expectation that the company’s liquidity will weaken significantly over the next 12-18 months, owing to the maturity of its 2020 notes. Given the negative ratings outlook, Moody’s will unlikely upgrade Alam Sutera’s ratings over the next 12-18 months.

Nevertheless, the ratings outlook could return to stable if the company:

(1) successfully refinances its $235 million bond due March 2020; (2) continues to execute its business plans, in particular, its land sales to China Fortune Land Development Co., Ltd (CFLD); and (3) maintains stable financial metrics, such that adjusted debt/ homebuilding EBITDA is below 5.0x and adjusted homebuilding EBIT/interest expense is above 2.0x.

Moody’s could downgrade the ratings if Alam Sutera’s financial and
liquidity profiles weaken owing to:

(1) an inability to proactively address the refinancing of its $235 million bond due March 2020;

(2) a failure to execute its business plans, in particular, its land sales to CFLD;

(3) a deterioration in the property market, leading to a protracted
weakness in the company’s operations; and (4) a material depreciation in the Indonesian rupiah, which could increase the company’s debt servicing obligations.

Metrics indicative of downward ratings pressure include: (1) adjusted
debt/homebuilding EBITDA exceeding 5.0x; (2) adjusted homebuilding EBIT/interest expense falling below 2.0x; or (3) insufficient cash to cover short-term debt obligations.

Established in November 1993 and listed on the Indonesian Stock Exchange in December 2007, Alam Sutera Realty Tbk (P.T.) is an integrated property developer in Indonesia that focuses on the sale of land lots in accordance with township planning requirements, as well as property development in residential and commercial segments in Indonesia.

At Sept. 30, 2018, the family of The Ning King owned around 47 percent of the company.

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