JAKARTA (TheInsiderStories) – Moody’s Investors Service has assigned a Ba2 rating to PT Wijaya Karya Tbk’s (IDX:WIKA) proposed Indonesian rupiah-denominated, senior unsecured bond.
The rating outlook is ‘stable’.
The Ba2 bond rating is in line with WIKA’s Ba2 corporate family rating (CFR), because the bond constitutes WIKA’s direct, unconditional, unsubordinated, and unsecured obligation.
WIKA will use the net proceeds from the bond issuance to fund capital expenditure and repay part of its existing borrowings.
“The proposed bond issuance will improve WIKA’s liquidity profile, because it plans to use the proceeds to repay around Rp1.75 trillion in short-term debt, with the remaining funds allocated towards partially pre-funding planned capital expenditures and investments,” says Maisam Hasnain, a Moody’s Analyst.
WIKA’s planned capital expenditure and investments include toll road construction projects, transit-oriented development projects, and equity investments in the Jakarta to Bandung High Speed Rail project, in which WIKA has an effective 22.8 per cent stake.
As a government-related issuer, WIKA’s Ba2 CFR reflects: (1) its b1 baseline credit assessment (BCA); and (2) a two-notch uplift based on Moody’s expectation that the company will receive a moderate level of extraordinary support from the government of Indonesia (Baa3 positive) in times of need.
WIKA’s baseline credit assessment reflects: (1) its leading market position as one of the largest construction companies in Indonesia, with an established track record of completing large projects; (2) a sizeable order book that provides good revenue and cash flow visibility; and (3) a diversified profile with multiple business segments; a situation which supports stable margins.
The BCA also incorporates Moody’s view that WIKA will benefit from Indonesian government initiatives to accelerate infrastructure development in the country.
On the other hand, WIKA’s standalone credit strength is constrained by: (1) increased concentration risk associated with its three largest contracts, which together contribute around 29 per cent of its order book; and (2) sizeable capital expenditure and investment plans, which will see leverage, as measured by adjusted debt/EBITDA, increase moderately to around 4.0x.
The rating outlook is stable, reflecting Moody’s expectation that WIKA will maintain its leading market position, and demonstrate strong project execution capabilities. The outlook also reflects Moody’s expectation that the company’s operating performance will remain supported by its sizeable order book.
A rating upgrade is unlikely over the next 12-18 months, given WIKA’s sizeable capital expenditure and investment requirements.
Over the longer term, positive momentum on its BCA could build, if WIKA successfully executes its business plan while maintaining a disciplined approach to investments, with a sustained improvement in its financial profile and a strong order book. However, an improvement in the BCA or upgrade to the sovereign rating will not automatically result in an upgrade of WIKA’s rating.
Alternatively, WIKA’s rating could face downward pressure if the company: (1) bids aggressively to win new contracts, resulting in a considerable deterioration in its financial profile; (2) experiences a substantial decline in new contracts wins; or (3) incurs large cost overruns and delays in its projects.
Credit metrics indicative of downward rating pressure include: (1) adjusted debt/EBITDA above 5.0x; and (2) adjusted EBITA/interest expense below 2.0x on a sustained basis.
While unlikely given the positive outlook, a downgrade to the Indonesian sovereign rating would result in a downgrade to WIKA’s rating. Furthermore, a reduction in the government’s shareholding level or perceived support could lead to a negative rating action on WIKA.
The methodologies used in this rating were Construction Industry published in March 2017, and Government-Related Issuers published in August 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
Established in 1960, Wijaya Karya (Persero) Tbk. (P.T.) (WIKA) is one of the largest engineering, procurement and construction companies in Indonesia, with revenues of around Rp22.2 trillion for the 12 months to Sept 30, 2017, and an order book of Rp94.4 trillion as of the same date.
Listed on the Indonesian Stock Exchange since 2007, WIKA is 65 per cent owned by the Government of Indonesia (Baa3 positive), with the remaining 35 per cent shares held by members of the public. (*)