Reuters logo
Fitch Downgrades Multipolar to 'B-'/'BBB-(idn)'; Outlook Stable
June 23, 2017 / 8:34 AM / 5 months ago

Fitch Downgrades Multipolar to 'B-'/'BBB-(idn)'; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE/JAKARTA, June 23 (Fitch) Fitch Ratings has downgraded Indonesian holding company PT Multipolar Tbk's Long-Term Issuer Default Rating to 'B-' from 'B'. The Outlook is Stable. The agency has also downgraded Multipolar's senior unsecured rating and USD230 million notes due 2018 to 'B-' from 'B', with Recovery Rating of 'RR4'. The notes were issued by Pacific Emerald Pte Ltd, a wholly owned subsidiary, and guaranteed by Multipolar and certain subsidiaries. At the same time, Fitch Ratings Indonesia has downgraded the National Long-Term Rating to 'BBB-(idn)' from 'BBB+(idn)'. The Outlook is Stable. The downgrade reflects our expectation of Multipolar's weaker credit profile on account of persistently weak performance from PT Matahari Putra Prima Tbk (MPPA) for the next two years due to increasing mini-market format competition. Cash flow pressure from weakening margins along with capex requirements for store expansion will affect MPPA's shareholder distribution ability. This will make Multipolar more reliant on dividends from PT Matahari Department Store Tbk (MDS). We expect Multipolar's fixed-charge coverage to remain below 1.0x in 2017 and 2018, as measured by (consolidated Multipolar EBITDA - MPPA EBITDA + dividends + rent)/(adjusted interest + rent). 'BBB' National Ratings denote a moderate default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions are more likely to affect the capacity for timely repayment than is the case for financial commitments denoted by a higher rated category. KEY RATING DRIVERS Persistently Weaker MPPA Performance: Multipolar's weaker credit profile reflects our expectation of sustained pressure on MPPA's pre-dividend free cash flows from increasing mini-market format competition, store expansion targets and a rising need for promotional activity to support store traffic. MPPA continued to suffer from negative same-store sales growth of -6.9% in 1Q17 (2016: -4.5%) and a higher operating expense ratio of 20.9% (2016: 15.8%), leading to negative EBITDA of -IDR126 billion in 1Q17 (1Q16: -IDR23 billion). Solid Profile of MDS: The solid financial performance of MDS ensures stable dividends for Multipolar. MDS had ample liquidity at end-2016, with a IDR1.7 trillion cash balance and no interest-bearing debt on its balance sheet. We expect MDS to generate a stable profit margin, with an EBITDA margin of around 16% and net profit margin of 11%. MDS distributed 70% of net income as dividends in 2016 and we expect stable dividend upstream in 2017 and 2018. Fitch sees the business profile of MDS as supportive to Multipolar's rating given MDS's market leadership status in Indonesia's department store business and benign competition in the non-food retail segment. Decreasing Fixed-Charge Coverage: Fitch expects fixed-charge coverage to decline to below 1.0x in 2017 and 2018 - our previous threshold for negative rating action. Multipolar's subsidiaries, with the exception of PT Multipolar Technology Tbk (MLPT), have been generating volatile EBITDA. An improvement in MPPA-deconsolidated EBITDA will depend on an immediate turnaround of Multipolar's China operation, significant expansion of its other small businesses and stable performance from its property management companies. We expect the ratio to remain low from a combination of persistent weakening in MPPA performance and profit volatility at most of its subsidiaries. Large Cash Balance: Liquidity at Multipolar holding company level will be supported by an ample cash balance of around IDR1.7 trillion at end-2016 from the sale of a 3% stake in MDS in September 2016. We estimate that the strong cash balance and steady dividend upstream from MDS will be adequate to cover holding company expenses and interest costs in 2017 and 2018, as the IDR120 billion short-term revolving facility was fully utilised at end-2016. Manageable Refinancing Risk: The rating takes into account our expectation that Multipolar's management is proactively addressing the maturity of the USD230 million senior unsecured notes in July 2018 and is currently in discussions with lenders. Dividend Reliance: Multipolar's rating reflects the structural subordination that arises from its group structure. Multipolar is a holding company that owns majority stakes in companies involved in businesses such as retail, IT services (MLPT) and property management (PT Matahari Pasific (MP) and PT Nadya Putra Investama (NPI)). Most of Multipolar's cash flow is generated from upstream stream of dividends from its investment in Indonesian retailers, MPPA and MDS, of which Multipolar owns 50.2% and 17.48%, respectively. DERIVATION SUMMARY Credit metrics and cash flows of Mutlipolar rely on dividend inflow from subsidiaries, similarly to PT Indika Energy Tbk (B-/Stable). Indika's dividends mostly come from its coal mining company, PT Kideco Jaya Agung, while Multipolar's dividends come from its non-food retail operation, MDS. Both companies have an adequate cash balance at the holding company level to fund short-term operations and expenses. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - 10% revenue growth per annum (2016: -10%) and a stable EBITDA margin of around 9%-10% for MLPT for 2017-2018 (2016: 11%) - Annual capex of IDR300 billion-400 billion for subsidiaries other than MPPA from 2017 to 2018 - Stable dividends upstream from MDS in 2017 and 2018 RATING SENSITIVITIES Developments that May, Individually or Collectively, Lead to Positive Rating Action - Fixed-charge coverage, adjusted for MPPA deconsolidation and dividends, rising above 1.0x on a sustained basis Developments that May, Individually or Collectively, Lead to Negative Rating Action - Weakening liquidity as indicated by significant decline in cash balance or weaker access to banking facilities - Deterioration in MDS operating performance that would limit its ability to pay dividend LIQUIDITY Adequate Short-Term Liquidity: Multipolar had more than IDR3.4 trillion in cash against the IDR96 billion maturity of long-term debt and IDR504 billion maturity of its short-term revolving loan at end-2016. We expect subsidiaries, such as MPPA, MLPT, MP, NPI and PT Multifiling Mitra Indonesia Tbk, will be able to manage their liquidity comfortably given their adequate credit metrics. On the other hand, we expect the credit facility at weaker subsidiary, PT Kharisma Artha Sejati, to continue being rolled-over. Contact: Primary Analyst Hasira De Silva, CFA (International Ratings) Director +65 6796 7240 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec City Tower 4 Singapore 038986 Olly Prayudi (National Ratings) Associate Director +62 21 2988 6812 Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta 12940 Secondary Analyst Olly Prayudi (International Ratings) Associate Director +62 21 2988 6812 Committee Chairperson Vicky Melbourne Senior Director +61 2 8256 0325 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Additional information is available on Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here National Scale Ratings Criteria (pub. 07 Mar 2017) 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