JAKARTA (TheInsiderStories) – Moody’s Investors Service has assigned a first-time Baa3 issuer rating to state-owned toll operator, PT Hutama Karya (HK). The rating outlook is stable and reflects its growing toll operations as the sole developer and operator of the large, multi-year, Trans-Sumatra project.
“HK’ standalone credit profile reflects its position as one of the largest engineering, procurement and construction (EPC) companies in Indonesia by revenue, with a track record of completing large projects,” says Abhishek Tyagi, a Moody’s Senior Analyst
HK has been assigned as the sole developer and operator of the Trans-Sumatra Toll Roads, which will help transform its business profile from predominantly construction company to the country’s largest toll roads operator. Upon completion, the Trans-Sumatra toll road will be the longest toll road in Indonesia.
“Our assumption of very high support from the Indonesian government when needed is underpinned by the government’s 100 percent ownership of HK, its close supervision over its operations and budget, and strategic role in achieving Indonesia’ infrastructure development objectives, and especially the development of the Trans-Sumatra project,” he adds.
Reflecting the importance of the Trans-Sumatra project to the Indonesian government, the government also guarantees all debt pertaining to the Trans-Sumatra project, which accounted for 78 percent of the company’ outstanding debt as of December 2019.
HK has a diversified business profile with multiple revenue-generating segments, like EPC, civil & building infrastructure, toll road operations, energy & industrial, property & realty, and construction materials. The operational diversity between the various business segments helps moderate earnings volatility and supports the company’ credit profile.
The operator‘ order book position as of December 2019 was Rp58.9 trillion (US$3.75 billion). Based on revenues of Rp27.1 trillion for the 12 months to December 2019, this represents a healthy order book to revenue ratio of around 2.2x.
The rating also reflects Moody’s expectation that the company will benefit from the Indonesian government’ initiatives to accelerate infrastructure development in the country. The state budget allocation for infrastructure more than doubled to Rp340 trillion in 2019 from Rp178 trillion in 2014, and is set to increase a further 4.9 percent to Rp419 trillion in 2020.
However, HK’ standalone credit strength is constrained by the significant capital spending required for the Trans-Sumatra project over next 5 – 6 years, and the inherent cyclicality in the construction industry. As such, any project delays or cost overruns could adversely impact HK’ credit profile.
Moody’s could downgrade HK’s rating if it bids aggressively to win new contracts, resulting in a considerable deterioration in its financial profile, it experiences a substantial decline in new contracts wins, or it incurs large cost overruns and project delays.
A downgrade of Indonesia’ sovereign rating would result in a downgrade of the company’ rating. Furthermore, a reduction in the government’ shareholding or perceived support could lead to a downgrade of HK.
Established in 1961, Hutama Karya is one of largest EPC company in Indonesia by revenue. The key business segments are infrastructure, industry and EPC, investment property and realty.
The company reported revenues of Rp27.1 trillion (unaudited) and an order book of Rp58.9 trillion (2.2x revenues) in 2019. HK is 100 percent owned by the Government of Indonesia through state own enterprises ministry.
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