Singapore, May 22, 2017 — Moody’s Investors Service has assigned a first-time Ba3 corporate family rating to Agung Podomoro Land Tbk (P.T.)
At the same time, Moody’s has assigned a Ba3 rating to the proposed USD-denominated bonds to be issued by APL Realty Holdings Pte. Ltd., a
wholly owned subsidiary of APL. The proposed bonds are unconditionally and irrevocably guaranteed by APL and certain of its subsidiaries.
The outlook on the ratings is stable.
APL will use approximately USD155 million of the net bond proceeds for debt repayment and the rest for general corporate purposes. The rating on the proposed bond is subject to review of final terms and conditions of the bond indenture.
“APL’s Ba3 ratings reflect its established market position as a developer of mixed-use projects in Jakarta. The company is well-diversified across
multiple projects and property segments, and successfully caters to customers across the price spectrum,” says Jacintha Poh, a Moody’s Vice
President and Senior Analyst.
APL has completed a total of 29 projects — comprising apartments, trade centers, shopping centers, office towers and hotel properties — in
Jakarta over the last 10 years, and has therefore established a strong presence in the city. The company also has presences in second-tier Indonesian cities and locations, such as Bali, Batam, Bogor, Karawang, Bandung and Balikpapan.
“APL’s ratings take into account its growing investment property portfolio, with its healthy operating performance, and therefore its
ability to provide predictable recurring income, which partially mitigates the effects of the lumpy cash flows from its property
development business,” adds Poh.
At 31 December 2016, the company’s investment properties contributed approximately 27% of total revenue and 43% of reported EBITDA,
significant improvements from approximately 5% of revenue and 22% of reported EBITDA in 2010.
Over the next 12-18 months, Moody’s expects revenue from its investment properties to grow by around 10% and contribute to 25%-30% of revenue and 35%-40% of EBITDA .
Nonetheless, APL’s ratings are constrained by its small scale relative to its global peers and uncertainty around its reclamation project in North Jakarta. The company is also exposed to the cyclical character of the property sector and evolving nature of the regulatory environment in
APL had obtained concessions to reclaim three islands — F, G and I — totaling around 550 hectares in North Jakarta, and had started to reclaim
island G, an area of 161 hectares, also known as the Pluit City project.
However, the entire reclamation project has been suspended due to administrative sanctions since May 2016. Given uncertainty over when the
suspension will end, Moody’s base case scenario incorporates only maintenance costs relating to the project and the absence of cash flow
In 2017, Moody’s expects APL to achieve around IDR5 trillion in marketing sales, largely driven by the sale of industrial land at the Podomoro
Industrial Park for IDR1.6 trillion. The company will also benefit from its sale of hotel – Pullman Jakarta Central Park- for IDR1.3 trillion.
Moody’s expects that the company’s adjusted debt/homebuilding EBITDA will measure around 2.5x in 2017 and adjusted homebuilding EBIT/interest expense will stand at around 3.5x over the same period. At 31 December 2016, APL had an adjusted debt/homebuilding EBITDA of 2.8x and adjusted homebuilding EBIT/interest expense of 2.6x.
Pro forma for the bonds, Moody’s expects APL’s secured debt/total debt to come down to around 60% in 2017 from 97% in 2016. Consequently,
bondholders claims will be subordinated to the claims of senior lenders. However, Moody’s does not notch down APL’s proposed bonds as the
company’s secured debt/total assets will improve to around 20% over the next 12-18 months, from 25% in 2016.
Moody’s also notes that APL’s book value of assets does not take into account the significant appreciation in the market value of its
investment properties, which further improves the asset coverage. The ratings outlook is stable, reflecting Moody’s expectation that APL will work towards achieving its sales target and maintaining financial discipline as it pursues growth.
An upward ratings trend could emerge if APL successfully: (1) executes its business plans and grows revenue to above IDR8 trillion; (2)
improves its financial profile, such that adjusted debt/homebuilding EBITDA is less than 2.5x and adjusted homebuilding EBIT/interest
coverage is above 4.0x; and (3) maintains a solid liquidity position in the form of cash balances and committed facilities.
APL’s rating could face downward pressure if: (1) the company fails to implement its business plans; and/or (2) the property market deteriorates,
leading to protracted weakness in the company’s operations and credit profile.
We consider adjusted debt/homebuilding EBITDA over 3.5x and adjusted homebuilding EBIT/ interest coverage below 2.0x on a sustained basis as indications that a downgrade may be necessary.
Agung Podomoro Land Tbk (P.T.) (APL) is an integrated property developer. It listed on the Indonesia Stock Exchange in 2010. The company and its subsidiaries are engaged in the development, management and operation of apartments, landed houses, shopping centers, office towers and hotel properties. APL is controlled by Trihatma Kusuma Haliman, the son of the company’s late founder, who had a 73.9% stake in the company at 31 December 2016.