As of June, number of companies most at risk of losing their investment-grade ratings, potential fallen angels, in Asia, excluding Japan and Australia, climbed to 21 from 8 at the end of 2019, due to lower earnings and cash flow caused by the global coronavirus shock - Photo: Privacy

JAKARTA (TheInsiderStories) – Moody’s Investors Service has downgraded corporate family rating (CFR) of three Indonesian companies followed the COVID-19 impacts. The agency cuts property developer PT Agung Podomoro Land Tbk (IDX: APLN) from B2 to B3, PT Alam Sutera Realty Tbk (IDX: ASRI) and tyre maker PT Gajah Tunggal Tbk (IDX: GJTL) from B3 to Caa1, respectively.

Agung Podomoro Land

Moody’s also has downgraded the backed senior unsecured rating of the 2024 notes issued by APL Realty Holdings Pte. Ltd., a wholly owned subsidiary of the company, to B3 from B2. The notes are guaranteed by Agung Podomoro Land and some of its subsidiaries. The outlook on all ratings remains negative.

“The downgrade reflects an increase in Agung Podomoro Land’ liquidity risk over the next 12 months because of the maturity of its secured loan in March 2021, and our expectation of weaker operating cash flows,” says Jacintha Poh, Moody’s analyst in her latest report.

In September 2019, the company 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). Moody’s expects the developer will be reliant on proceeds from the sale of an investment property to repay the loan, but the sale had not yet been completed as of March 2020.

Moody’s also expects Agung Podomoro Land‘ revenue generated from its investment properties will fall by around 20 percent in 2020 because travel restrictions and the fear of contagion caused by the coronavirus outbreak will lead to drop in demand for the company’s retail spaces and hotels.

Based on Moody’s assumption that the publicly listed firm achieves marketing up to Rp1.8 trillion (US$112.5 million) in 2020. APLN is an integrated property developer, and listed on the Indonesia Stock Exchange (IDX) in 2010.

Agung Podomoro and its subsidiaries are engaged in the development, management and operation of apartments, houses, shopping centers, office towers and hotel properties. It is controlled by Trihatma Kusuma Haliman and family, who held an approximate 84 percent stake in the company.

Alam Sutera Realty

Beside downgrade the CFR, Moody’s also downgraded the backed senior unsecured rating of the 2021 notes and 2022 notes issued by Alam Synergy Pte. Ltd., a wholly owned subsidiary of Alam Sutera, to Caa1 from B3. The notes are guaranteed by the company and most of its subsidiaries. The outlook on the ratings remains negative.

“The downgrade reflects the heightened refinancing risk on Alam Sutera’ 2021 notes because we expect the company to be reliant on external funding and do not believe it has sufficient committed funds to address the risk. The depreciation of the Indonesian Rupiah against the US dollar has exacerbated Alam Sutera’ refinancing risk,” says Poh.

In March 2020, the developer announced a $60 million call redemption on its 2021 notes. Moody’s estimates that the company will fund the redemption with proceeds of Rp700 billion raised from two secured bank loans, PT Bank Permata Tbk (IDX: BNLI) (Baa3 under review for upgrade) and PT Bank Central Asia Tbk (IDX: BBCA) (Baa2 stable), and around $20 million from the expiry of financial hedges.

Despite the partial redemption, Moody’s expects the company’ internal cash sources to be insufficient to fully cover the 2021 bond maturity. As third quarter of 2019, the company held cash and cash equivalents of Rp1.1 trillion. While Moody’s expects the company to generate around Rp600 billion in operating cash flows over the next 12 – 18 months, this amount could be lower if marketing sales are hurt by the coronavirus outbreak.

Consequently, the company is reliant on external funding to address its notes maturity. The negative outlook reflects Alam Sutera’ maturity wall, with all of its US-dollar notes maturing in 2021 and 2022.

Alam Sutera Realty is an integrated property developer in Indonesia that focuses on the sale of land lots in accordance with township planning requirements, as well as property development in residential and commercial segments in Indonesia. As of end 2019, the family of Ning King owned around 47 percent of the company.

Gajah Tunggal

Furthermore, Moody’s has downgraded the rating on GJTL’ $250 million senior secured notes due in August 2022 to Caa1 from B3. The outlook is negative.

“The downgrade to Caa1 reflects our expectation that GJTL’ largely unmitigated exposure to the weakening Indonesian Rupiah, if sustained, will drive up debt and weaken EBITDA margins. This in turn will dampen profitability, reduce cash flows and further increase its reliance on short-term funding”, says Stephanie Cheong, a Moody’s Analyst.

Gajah Tunggal‘ revenues are largely denominated in Indonesian rupiah, but almost all of its raw material costs, debt and debt service obligations are denominated in or linked to the US Dollar. Moody’s expects every 10 percent decline in Rupiah against the Greenback will lower the manufacturer’ EBITDA margins by around 2 percent.

Of company’ $397 million long-term US dollar debt, only $184 million was hedged at Sept. 30, 2019. She said, the hedges only protect the principal up to Rp14,811 while interest expense remains unhedged.

“Moreover, Gajah Tunggal relies heavily on short-term working capital loans, the majority of which will come due in August 2020. The current volatile capital market conditions exacerbate the refinancing risk for these loans,” she noted.

Moody’s projects the company’ $30 million of cash flow from operations over the next 12 months together with $46 in cash on its balance sheet at the end of September 2019 will be insufficient to cover estimated capital expenditures of $30 million and bank loan amortization payments totaling $53 million.

The tyre-maker also has $86 million outstanding under its short-term revolving working capital loans, the majority of which will mature in August 2020. GJTL is required to maintain a maximum net debt/EBITDA ratio and minimum debt service coverage ratio of 4.50x and 1.05x, respectively, according to its $250 million senior secured syndicated bank facilities due August 2022.

Gajah Tunggal, headquartered in Jakarta, is Southeast Asia’ largest integrated tire manufacturer, with installed capacity to produce 55,000 passenger car radial tires, 14,500 bias tires, 95,000 motorcycle tires, and 2,000 truck and bus radial tires per day. The company also has capacity to produce 40,000 tons and 75,000 tons of tire cord and synthetic rubber per year, respectively, for both internal consumption and third-party sales.

The key shareholders include Denham Pte Ltd (49.5 percent), a subsidiary of the Chinese tire manufacturer Giti Tire, and Compagnie Financiere Michelin SCmA (10 percent, A3 stable). The remaining shares are publicly traded on the IDX.

US$1: Rp16,000

Written by Staff Editor, Email: theinsiderstories@gmail.com