Fitch Assigns Alam Sutera's Notes Final 'B+' Rating

Mon Jan 27, 2014 9:32pm EST

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(The following statement was released by the rating agency) SINGAPORE/JAKARTA, January 27 (Fitch) Fitch Ratings has assigned Indonesia-based property developer PT Alam Sutera Realty Tbk's (ASRI, B+/Stable) USD225m 9% notes due 2019 a final 'B+' rating, with a Recovery Rating of ‘RR4’. The notes are issued by Alam Synergy Pte Ltd and guaranteed by ASRI and certain subsidiaries. The notes are rated at the same level as ASRI’s senior unsecured debt rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company. The rating action follows the receipt of documents conforming to information already received. The final rating is in line with the expected rating assigned on 7 January 2014. Proceeds from the notes will be used to finance the tender offer for its 2017 USD150m notes, project development and construction, redemption of any remaining 2017 notes in 2015 and for general corporate purposes. KEY RATING DRIVERS Small Scale, Improved Diversification: The ratings reflect ASRI’s small scale, project concentration and inherent volatility in the property developments. Historically, more than 50% of marketing sales derived from ASRI’s mature township in Serpong, a satellite city in the western part of Greater Jakarta. Fitch expects the company to gradually achieve a more diversified project mix as ASRI’s second township project at Pasar Kemis develops. Management estimates Pasar Kemis will account for about 43% of total marketing sales in 2013 (2012: 18%). Stability Amid Challenges: 2014 will be particularly challenging for property developments aimed at middle- and high-income buyers, such as ASRI’s Serpong project, with stricter mortgage regulation and the upcoming general election dampening investors’ buying sentiment. Fitch expects the higher presales at ASRI’s Pasar Kemis and steady recurring income from shopping malls and cultural parks to make up for the lower presales at Serpong. Pasar Kemis is strategically positioned to capture the more resilient demand from middle- to low-income buyers, with more affordable pricing and first-time home buyers being exempted from the authorities’ stricter mortgage regulation. Fitch expects sales at Pasar Kemis, which is located about 15 km from Serpong, to provide more stability to ASRI’s earnings. Rupiah Weakness Exacerbates Currency Mismatch: Property developers with US dollar-denominated borrowings have been hurt by the rupiah’s weakening, which has increased their debt burden in terms of the currency that they sell in. The rupiah’s significant depreciation and lower-than-expected presales have negatively impacted ASRI’s leverage as measured by presales to gross debt (2013F: 0.95x). Nevertheless, Fitch expects ASRI to maintain a leverage profile appropriate for its rating, with presales/gross debt at above 0.75x over the next 12 months, which underpins the Stable Outlook. ASRI’s well-distributed maturity profile is an additional comfort, in particular with the new issue pushing out debt maturity until 2019 and after. Established Track Record: The ratings also recognize ASRI’s low-cost, large land bank inventory, strategic development locations, and track record of successful project executions. ASRI is one of the pioneers in developing large-scale townships in Serpong, which is now a popular alternative to other areas in Greater Jakarta. Fitch believes ASRI will be able to leverage on its success story at Serpong for future project launches, as it recently demonstrated with the higher-than-expected sales for project launches in Pasar Kemis. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating action include: -A sustained increase in leverage such that the ratio of presales to gross debt falls below 0.75x on a sustained basis (2014F: 0.80x) -An increase in its exposure to non-core businesses Positive rating action is not expected due to the cyclical nature of ASRI’s property development business, the company’s small scale and a lack of project diversification. Contact: Primary Analyst Shahim Zubair, CFA Associate Director +65 67967227 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Secondary Analyst Erlin Salim Associate Director +62 21 2988 6811 Committee Chairperson Vicky Melbourne Senior Director +61 2 8256 0325 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, ‘Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage’, dated 5 August 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status 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 WEBSITE '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. 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.

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