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JAKARTA (TheInsiderStories) – Moody’s Investors Service has downgraded the corporate family rating (CFR) of MNC Investama Tbk. (P.T.) (BHIT) to Caa2 from Caa1, and the senior secured rating on the notes, issued by its wholly-owned subsidiary, Ottawa Holdings Pte. Ltd., and unconditionally and irrevocably guaranteed by BHIT, to Caa3 from Caa2.

The outlook on the ratings is negative, the rating agency said.

Through its 52.84 percent stake in PT Global Mediacom Tbk (BMTR ), BHIT has stakes in media operating companies PT Media Nusantara Citra Tbk (MNCN), Indonesian’s leading free-to-air broadcast company, and PT MNC Sky Vision Tbk, Indonesia’s leading pay-TV operator. BHIT also has a significant interest in PT MNC Kapital Indonesia Tbk, a leading financial services company in Indonesia.

“The downgrade of BHIT’s CFR rating to Caa2 reflects the significant and pressing level of refinancing risk throughout the group. As of 31 March 2017, BHIT’s consolidated short-term, current debt and bonds payable totaled Rp6.3 trillion . In addition, BHIT’s US$365 million senior secured notes are due in May 2018,” said Annalisa DiChiara, a Moody’s Vice President and Senior Credit Officer.

Most of the short-term and current debt maturities are at the operating subsidiary levels, including a $250 million (Rp 3.4 trillion) bank loan maturing at MNCN, and an Rp999 billion bond payable at BMTR.

In addition, the $365 million 5.875 percent senior secured notes — issued by BHIT’s wholly-owned subsidiary Ottawa Holdings Pte. Ltd. and unconditionally and irrevocably guaranteed by BHIT– mature in May 2018.

In Moody’s view, the absence of a definitive refinancing plan to secure funding one year prior to maturity exposes the company to a material level of refinancing risk and market risk.

The BHIT bond is secured by 3,276,739,031 shares of BMTR (equal to 2.0 times the principal amount of the notes offered as of the date of the offering memorandum in May 2013 based on the BHIT’s financial statement disclosure). However, based on a closing price on 10 May 2017, the value of those shares is currently equal to just 0.4x of the principal amount of the $365 million senior secured notes outstanding.

Moody’s noted that the debt service account — equal to two semi-annual interest payments – was fully funded with an amount equal to $10.7 million at 31 March 2017, according to the disclosure in BHIT’s financial statements. At the same time, the Caa2 CFR reflects BHIT’s complex organizational structure.

BHIT owns less than 100 percent of its operating subsidiaries, including MNCN. As a result, Moody’s also analyzes BHIT on a standalone basis whereby the company’s EBITDA consists primarily of the cash dividends it receives from its subsidiaries, based on its effective equity ownership.

For example, although fully consolidated, as of 31 March, BHIT’s effective interest in MNCN — which Moody’s estimates contributes a majority of BHIT’s consolidated EBITDA — was only around 33 percent. This is because BHIT owns around 52.84 percent of BMTR, which then owns around 62.66 percent of MNCN .

Moody’s believes this standalone analysis results in significantly higher leverage and weaker interest coverage than the 4.5x adjusted debt/EBITDA and 3.2x EBITDA/interest BHIT recorded on a Moody’s adjusted consolidated basis for the 12 months ended 30 Dec 2016.

Finally, although on a consolidated basis, cash and current financial assets totaled IDR8.2 trillion at 31 March 2017, a portion of this amount is at operating subsidiaries, including BMTR and MNCN, which are less than 100 percent owned. Moody’s is also cognizant that a portion of consolidated cash and financial assets is either deposited in, or held in financial securities issued by, related parties, and so may not be immediately realizable.

The outlook is negative, reflecting the persistent level of refinancing risk present throughout the BHIT group over the next 12-15 months, including the $365 million senior secured notes maturity in May 2018. Further negative ratings pressure could emerge should BHIT’s operating subsidiaries fail to service or successfully refinance their maturing loans or BHIT’s bond.

Upward rating pressure is unlikely over the near term, given the significant level of refinancing risk associated with debt maturing at BHIT’s key operating subsidiaries and its own bond maturity in May 2018. However, the ratings could be upgraded should BHIT refinance its upcoming bank and bond maturities in a timely manner and without a significant increase in interest costs.

Headquartered in Jakarta, MNC Investama Tbk. (P.T.) (BHIT) is a listed investment holding company with strategic investments in operating companies in media, financial services, energy and real estate. BHIT is controlled by Hary Tanoesoedibjo. (*)