JAKARTA (TheInsiderStories) – Moody’s Investors Service has affirmed the Ba3 corporate family rating of PT Bumi Serpong Damai Tbk (IDX: BSD)E. At the same time, Moody’s has affirmed the Ba3 backed senior unsecured rating of the 2021 and 2023 notes issued by Global Prime Capital Pte. Ltd., a wholly owned subsidiary of BSD.
The notes are guaranteed by BSDE and some of its subsidiaries. Moody’s has changed the outlook to stable from positive.
“The change in BSDE’ outlook to stable from positive reflects a
deterioration in the company’s credit metrics in 2018, owing to weaker marketing sales and higher debt levels,” says Jacintha Poh, a Moody’s Vice President and Senior Credit Officer.
The change in outlook also takes into account Moody’s expectation that the company‘ key credit metrics over the next 12-18 months will unlikely meet the thresholds set for a ratings upgrade.
In 2018, BSDE achieved Rp5.2 trillion (US$361.11 million) of marketing sales, excluding sales from joint venture projects, such as Nava Park and The Zora. This result was equivalent to 79 percent of its Rp6.6 trillion full year target.
Historically, the company has always exceeded 80 percent of its full-year target. The weaker-than-expected marketing sales was caused by poor buyer sentiment in the lead-up to Indonesia’s presidential election.
Moody’s points out that BSD has taken on additional debt and kept a
portion of the proceeds as cash. Total adjusted debt increased to Rp14.3 trillion at Dec. 31, 2018 from prior year of Rp9.5 trillion.
Cash, on the other hand, increased to Rp8.9 trillion from Rp5.8
trillion during the same period, supporting the company‘ very good
liquidity for 2019 and 2020.
Improvements in BSD’ key credit metrics will be led by the repayment of debt with cash, the company completed a call redemption of its remaining $79 million 6.75 percent notes due April 2020 in April 2019, and an improvement in EBITDA, owing to a pick-up in marketing sales.
“The affirmation of BSDE’ Ba3 corporate family rating reflects the
company’s established position as one of the largest property developers in Indonesia, strong profitability, supported by its ownership of a large and low-cost land bank, and a growing recurring income base,” adds Poh, who is Moody’s Lead Analyst for BSD.
In 2018, BSDE‘ recurring revenue accounted for 22 percent of total revenue, at around Rp1.5 trillion, largely driven by contributions from two office towers acquired at the end of 2017. Over the next 12-18 months, Moody’s expects the company’s recurring revenue to grow by around 20 percent, supported by the construction of new investment properties, namely, Digital Hub and Green Office Park 1 office.
Moody’s estimates that BSDE’ recurring cash flow will cover at least 0.8x of interest expense. The marginal decline in coverage is because of higher interest expenses due to increased debt levels, and the higher coupon rate on its US-dollar bond issued in 2018.
Bumi Serpong is exposed to foreign exchange rate risk. Specifically, the company’s US-dollar bond issuance made up around 68 percent of its outstanding debt at March, 31, 2019, while business transactions are in Indonesian rupiah.
Nonetheless, the company’s exposure to foreign exchange rate risk is partially mitigated by the fact that there are no maturities of its US dollar bonds until April 2021.
Moody’s will unlikely upgrade BSDE’ ratings over the near to medium term, given the stable outlook, but Moody’s would consider upgrading the ratings if the company successfully executes its business plans, while maintaining healthy credit metrics and good liquidity.
Moody’s could downgrade BSDE’ ratings if the company fails to
implement its business plans, the property market deteriorates,
leading to protracted weakness in BSDE’ operations and credit profile, or there is evidence of cash leaking from BSDE to fund affiliated companies. For example, through inter-company loans, aggressive cash dividends or investments in affiliates.
Established in 1984, Bumi Serpong Damai is the largest
developer listed on the Indonesia Stock Exchange by market
capitalization. The company and its subsidiaries are engaged in the
development, management and operation of residential townships,
condominium towers, office buildings, retail malls and hotel properties.
The company is sponsored by Sinarmas Land Limited, which held around a 60 percent interest in BSD at March, 31, 2019.
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