April 11, 2017 / 2:52 AM / 7 months ago

Fitch Assigns Modernland's USD240m Notes 'B' Final Rating

(The following statement was released by the rating agency) SINGAPORE/JAKARTA, April 10 (Fitch) Fitch Ratings-Singapore/Jakarta-11 April 2017: Fitch Ratings has assigned Indonesia-based PT Modernland Realty Tbk's (Modernland, B/Negative) USD240 million 6.95% senior unsecured notes due in 2024 a final rating of 'B' with a Recovery Rating of 'RR4'. The notes are issued by Modernland's wholly owned subsidiary, Modernland Overseas Pte Ltd, and guaranteed by Modernland and certain subsidiaries. The final rating follows the receipt of documents conforming to information already received, and is in line with the expected rating assigned on 3 April 2017. The notes are rated at the same level as Modernland's senior unsecured rating as they represent unconditional, unsecured and unsubordinated obligations of the company. Fitch believes Modernland's financial profile will remain unchanged and consistent with its rating, as proceeds from the new notes will be used mainly for refinancing and to extend the maturity profile of the company's debt, allowing it more flexibility to manage cash flows. The company plans to use the proceeds to partly redeem its existing USD248 million 9.75% senior unsecured notes maturing in 2019. KEY RATING DRIVERS Negative Outlook; Recovering Macroeconomic Condition: The Negative Outlook on Modernland's Long-Term Issuer Default Rating (IDR) reflects the risk that the company could breach a number of its local-currency debt covenants in 2017, as EBITDA may remain weak unless presales improve in the next six to 12 months. In 2016, Modernland reported presales of around IDR4.5 trillion (2015: IDR3.1 trillion). However, this included IDR3.2 trillion booked as proceeds from a one-off land sale to a joint venture (JV) between Modernland and PT Astra Land Indonesia, where Modernland will only receive half of this sale in cash, with the balance going towards its investment in the JV. In Fitch's view, Modernland may not achieve its presales target for 2017, as the domestic macroeconomic environment is only starting to recover and we believe there will be a lag before we see a sustained improvement in demand for property. Nevertheless, the company may take measures to improve the recognition of EBITDA or obtain waivers on covenant breaches. Volatile Industrial Cash Flows: Around 70% of Modernland's contracted sales in 2016 stemmed from industrial land sales and the one-off land sale to the JV. Therefore its cash flows tend to be more volatile during economic downturns than those of peers that depend on residential sales. Nevertheless, the low development risk associated with industrial land sales mitigates this cash flow volatility. Modernland has a 20-year track record in developing industrial estates, and has built strong relationships with tenants. Its flagship Cikande industrial estate has a very low average land cost compared with the current average selling price (ASP) of around IDR1.7 million per square metre (sqm), and Modernland has sufficient land to continue developing there for around five years, even if we assume that the company makes no further land acquisitions. Fitch believes Modernland can build on its success in Cikande and replicate its business model for future developments in its newer industrial estate in Bekasi. Limited Residential Track Record: Fitch expects Modernland's residential and commercial segment to account for around 55% of presales by 2018, driven by the Jakarta Garden City (JGC) project and the new launches in Bekasi. The growing proportion of residential sales will counterbalance volatility in industrial land sales, but Modernland's track record in developing an integrated, large-scale residential project is still limited relative to the other rated developers, like PT Bumi Serpong Damai Tbk (BB-/Stable), PT Lippo Karawaci Tbk (BB-/Stable) and PT Alam Sutera Realty Tbk (B+/Negative). Manageable Forex Risk: Modernland has entered into a few call-spread options to partially hedge the principal of its USD248 million bond due 2019, covering rupiah depreciation of up to IDR15,500 per US dollar. The company is also planning to enter into a similar hedging arrangement for its new proposed bond. In addition, Fitch believes Modernland's thick margins are sufficient to absorb short-term currency volatility. DERIVATION SUMMARY Modernland's rating is well-positioned relative to other Fitch-rated property developers, such as PT Kawasan Industri Jababeka Tbk (KIJA, B+/Stable) and PT Alam Sutera Realty Tbk (ASRI, B+/Negative). Fitch believes that KIJA's stronger recurring interest coverage, lower leverage and relatively more strategic industrial development location compared to that of Modernland supports its higher rating. We believe ASRI's longer track record in residential developments and more defensive cash flow mix support a higher rating than Modernland. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Presales of around IDR2.1 trillion in 2017 - Land acquisition capex of around IDR350 billion in 2017 RATING SENSITIVITIES Future developments that may, individually or collectively, lead to negative rating action include: - If there are heightened risk that the company may breach covenants on its local-currency debt, or the company fails to negotiate waivers on covenant breaches - Presales/ gross debt sustained at less than 40% (2016: 62%) Future developments that may, individually or collectively, lead the Outlook to be revised back to Stable include: - If the risk of the company breaching its local-currency debt covenants is reduced, or the company successfully manages to negotiate waivers on covenant breaches LIQUIDITY As of December 2016, Modernland has readily available cash of around IDR400 billion compared with IDR470 billion of maturing short-term debt. We currently expect the company to post positive FCF of around IDR400 billion for 2017, which supports its liquidity. Modernland's capex in the short term is going to be limited to construction costs, which are partly contingent upon meeting sales thresholds in the current period. This, coupled with the discretionary nature of land acquisitions, may allow Modernland to accumulate cash and shore-up its liquidity profile. Liquidity is also supported by Modernland's access to local banks. Contact: Primary Analyst Hasira De Silva, CFA Director +65 67967240 Fitch Ratings Singapore Pte Ltd One Raffles Quay South Tower #22-11 Singapore 048583 Secondary Analyst Bernard Kie Associate Director +62 21 2988 6815 PT Fitch Ratings Indonesia DBS Bank Tower Jl Prof Dr Satrio Kav 3-5 Jakarta 12940 Committee Chairperson Vicky Melbourne Senior Director +61 2 8256 0325 Date of Relevant Rating Committee: 30 June 2016 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage - Effective from 17 August 2015 to 27 September 2016 (pub. 17 Aug 2015) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below