Moody's Investors Service says Indonesian property developers highlighting key rating trends - Photo by JLL.

JAKARTA (TheInsiderStories) – Moody’s Investors Service says that it has published the third edition of its Indonesian property developers chartbook, highlighting key rating trends, market indicators, and credit metrics to help investors better understand this sector.

“In terms of key market themes, the residential and industrial property segments are best positioned for 2019-20, on the back of our expectation for a recovering demand for mass-market residential properties, following the conclusion of the presidential elections earlier this year,” says Jacintha Poh, a Moody’s Vice President and Senior Credit Officer on Wednesday (12/11).

“Meanwhile, continuing foreign investment and infrastructure spending will help support demand for industrial land development,” adds Poh.

Elsewhere, demand for retail property will stay resilient, while the office property segment will remain challenged by oversupply.

Moody’s rates six property developers in Indonesia, all of which will enjoy improved marketing and sales activity in 2020, helped by a recovery in the demand for mass-market residential properties and industrial land.

In particular, strong block sales growth will be largely driven by PT Lippo Karawaci Tbk (IDX: LPKR) (B3 stable) expected sale of Lippo Mall Puri in the first half of 2020.

In terms of specific credit metrics, rated developers’ leverage and interest coverage will improve from levels recorded in 2018 but remain weak through 2019-20 owing to high debt levels and the time it takes for a sale to be recorded as revenue.

In addition, property developers’ refinancing risk will rise over the next 12-18 months. Debt maturities in 2020 will be manageable given their low size, but refinancing risk will rise overtime thanks to large US dollar bond maturities in 2021 and beyond.

Last month, the rating agency also says most Indonesian companies will face negative credit conditions in 2020 amid slowing economic growth, commodity price weakness and increasing refinancing risk.

However, conditions will remain supportive for the infrastructure sector, given continued power demand and manageable capital spending by port operators.

However, most infrastructure issuers will maintain stable credit quality, given their established market positions and long-term contracts with availability-linked revenue, where they get paid in full regardless of product demand, as long as they can deliver the full contracted service.

Meanwhile, liquidity will tighten. Onshore banks are becoming more selective in lending to comparatively weak companies, and offshore investors remain risk-averse amid global macroeconomic uncertainties. Refinancing risk is increasing ahead of large US dollar debt maturities in 2021 and beyond.

Upside factors for Moody’s outlook on Indonesian non-financial companies include a recovery in commodity prices and an improvement in liquidity, particularly in offshore bond markets, so rated companies can pro-actively address refinancing needs in 2021 and 2020.

Industry outlooks reflect Moody’s view of fundamental business conditions for the industry over the next 12-18 months. Since outlooks represent Moody’s forward-looking view on business conditions that factor into its ratings, a negative (positive) outlook suggests that negative (positive) rating actions are more likely on average.

Moody’s rates 45 companies across Indonesia’s main corporate sectors. Although the proportion of rated companies with negative outlooks has been increasing since 2018, the majority of Indonesian rated companies have stable outlooks.

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