JAKARTA (TheInsiderStories) – Moody’s Investors Service has downgraded the corporate family rating of PT MNC Investama Tbk (IDX: BHIT) to Caa1 from B3. BHIT is controlled by Hary Tanoesoedibjo.
At the same time, the rating company has downgraded BHIT’ senior secured rating to Caa2 from Caa1. The ratings outlook remains negative.
Through its 48.95 percent stake in PT Global Mediacom Tbk (IDX: BMTR, unrated), the multinational companies has significant stakes in media operating companies, PT Media Nusantara Citra Tbk (IDX: MNCN, unrated), and Indonesia’ (Baa2 stable) leading free-to-air broadcast company, and PT MNC Vision Networks Tbk (IDX: IPTV, unrated), a leading broadband and pay-TV operator in Indonesia.
“The downgrade of BHIT’s CFR to Caa1 reflects increasing refinancing risk — particularly at the holding company level — as BHIT’ May 2021 bond maturity draws closer and dividend income from its subsidiaries remains low,” says Annalisa Di Chiara, a Moody’s Vice President and Senior Credit Officer in an official statement released on Friday (08/08).
As a holding company, MNC Investama generates a limited amount of operational cash flow aside from dividend income. However, over the last 12 months Global Mediacom has paid just Rp69 billion (US$4.86 million) of dividends, which translated into dividend income for BHIT of around Rp40 billion based on its ownership stake. This level is insufficient to cover annual interest expense on the company’ bond of around $10 million.
“We believe dividend income at BHIT will remain limited over the next 12 to 18 months, as its key media operating subsidiaries — including BMTR, MNCN and IPTV — address upcoming debt maturities, ongoing amortization payments and focus on their own shareholder initiatives,” adds Di Chiara.
MNC Investama‘ liquidity position, on a standalone basis, will remain weak. As such, Moody’s anticipates that the repayment of BHIT’ bond in May 2021 will depend on capital raising activities, the timing of which is unclear and ultimately market sensitive.
While dividend income will likely be insufficient to cover interest
expense on BHIT’s bond, management has confirmed to Moody’s that a portion of short-term investments held at the holding company can be monetized as needed to support interest payments.
In addition, according to the company offering circular, BHIT is
required to maintain a debt service reserve account (DSRA) equal to one semi-annual interest payment. According to MNC Investama‘ latest quarterly financial report, the DSRA was fully funded as of 30 June 2019. The next interest payment of $10 million is due in November 2019.
BHIT’ Caa1 CFR continues to reflect the stable operating performance of its key media operating subsidiaries, particularly MNCN — held through its stake in BMTR — with MNCN contributing a majority of BHIT’ consolidated EBITDA. The CFR also considers the credit profiles of its non-media related businesses — which separately and collectively — have weaker market positions, lower margins and higher associated cash flow volatility.
MNC Investama‘ complex organizational and legal structure — both factors of which raise concerns over transparency with respect to shareholders’ intentions and corporate governance —have also been incorporated in the company’ ratings. In particular, related-party transactions and holdings – including cash, financial assets and investments — are material.
The ratings outlook is negative, reflecting the company’s weak liquidity position on a standalone basis. Debt service requirements or shareholder initiatives at the subsidiary level could continue to limit the subsidiaries’ ability or willingness to upstream dividends to BHIT,
ultimately increasing refinancing risk, as the 2021 bond maturity draws near.
Given the negative ratings outlook, an upgrade is unlikely.
Nevertheless, the outlook on the ratings could return to stable if MNC Investama‘ liquidity position — on a standalone basis — improves materially and a refinancing plan for its 2021 bond is finalized in a timely manner. Moody’s could downgrade the ratings if BHIT or its subsidiaries are unable to address debt service requirements in a timely manner.
Headquartered in Jakarta, MNC Investama is a listed company, with strategic investments in operating companies in media, financial services, energy and real estate. In addition to MNCN and IPTV, BHIT’s other operating companies include PT MNC Kapital Indonesia Tbk and PT MNC Land. The company also has portfolio
investments in other private and public companies operating in transport, infrastructure and other industries.
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