PT Agung Podomoro Land Tbk (IDX: APLN) plans to conduct a rights issue worth of Rp800 billion (US$56.33 million) to pay bonds debt - Photo by the Company.

JAKARTA (TheInsiderStories) – Moody’s Investors Service has confirmed the B2 corporate family rating of Indonesian property developer, PT Agung Podomoro Land Tbk (IDX: APLN), its announced on Monday (09/30). But the outlook on all ratings is negative.

At the same time, the credit rating agency has confirmed the B2 backed senior unsecured rating of the 2024 notes issued by APL Realty Holdings Pte. Ltd., a wholly-owned subsidiary of Agung Podomoro. The notes are guaranteed by the company and some of its subsidiaries.

It said these rating actions conclude the review for downgrade initiated on July 15, 2019. Reportedly, on Sept 26, the company announced that it has received Rp800 billion (US$57 million) of advances from its controlling shareholder, Trihatma Kusuma Haliman and family, which will be converted into equity after obtaining approval at the company’s extraordinary general meeting on November 2019.

The company also has signed a $127 million senior secured term facility agreement with Credit Opportunities II Pte. Ltd., (managed by SSG Capital Management) that has a tenor of 18 months and will be secured by Central Park Mall.

Agung Podomoro will use the funds raised to repay its outstanding Rp1.17 trillion syndicated facilities due 30 September, Rp451 billion domestic bond due 19 December, Rp99 billion domestic bond due 25 March 2020, and Rp750 billion syndicated facilities due 24 May 2021.

“The confirmation of Agung Podomoro’ B2 CFR reflects that the company has been able to arrange funds to address its significant refinancing requirements over the next six months,” says Jacintha Poh, a Moody’s Vice President and Senior Credit Officer.

She continued, “The negative outlook reflects our expectation that Agung Podomoro Land’s liquidity will weaken over the next 12-18 months and that the company will face refinancing risk, because its new secured term facility will come due by March 2021.”

The company’ B2 CFR also reflects the company’s established market position and portfolio of investment properties that provide a healthy recurring income base. In the first half of 2019, the developer’ recurring revenue accounted for 33 percent of total revenue, at around Rp1.5 trillion. Moody’s estimates the recurring cash flow covered around 0.8x of interest expense.

Over the next 12-18 months, Moody’s expects Agung Podomoro’ recurring revenue to grow by around 10 percent, largely driven by the opening of a new retail mall in Medan and hotels in Bandung. Moody’s estimates the recurring cash flow coverage of interest expense will also remain around 0.8x.

In the first half of 2019, Agung Podomoro achieved around Rp1.3 trillion of core marketing sales, equivalent to 43 percent of its Rp3.2 trillion full-year target. Despite the good pick-up in July and August, Moody’s estimates the company will likely achieve core marketing sales of only around Rp2 trillion in 2019.

The company plans to sell one of its investment properties in the second half of 2019 and use part of the proceeds to reduce debt, in turn supporting an improvement in liquidity and credit metrics. However, the sale may be subject to delays.

In terms of environmental, social and governance factors, Moody’s has considered Agung Podomoro‘ weak financial management. The company’s ownership is also concentrated in its founder and his family, but this risk is partially mitigated by the oversight exercised through independent board directors. Furthermore, the founder has shown support for the company by injecting funds in times of stress.

Given the negative rating outlook, an upgrade is unlikely over the next 12-18 months. Nonetheless, the outlook could return to stable if the company improves its liquidity such that cash balances and committed facilities are sufficient to cover operating cash needs and debt repayments over the next 12-18 months.

Agung Podomoro is an integrated property developer and listed on the Indonesia Stock Exchange in 2010. The company and its subsidiaries are engaged in the development, management, and operation of apartments, houses, shopping centers, office towers and hotel properties. Its controlled by Haliman and family, who held an approximate 84 percent stake in the company at 30 June 2019.

US$1=Rp14,200

Written by Lexy Nantu, Email: lexy@theinsiderstories.com