(Repeat for additional subscribers)
April 4 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Indonesia-based property developer PT Alam Sutera Realty Tbk's
(ASRI) Long-Term Issuer Default Rating at 'B+' with a Stable Outlook. Fitch has also
affirmed ASRI's senior unsecured rating, and the ratings of its outstanding US dollar
notes (which are issued by Alam Synergy Pte Ltd, and guaranteed by ASRI) at
'B+', with a Recovery Rating of 'RR4'. A full list of rating actions is at the
end of this commentary.
The affirmation of ASRI's ratings reflects its small scale, project
concentration and the inherent cyclicality in the property development business.
The rating also recognises ASRI's strong track record of presales across its
major development properties, its low-cost land bank and good-quality
KEY RATING DRIVERS
Stability, Amid Softer Demand: ASRI expects to shift its focus towards the
middle-market segment in 2014 in order to counter weaker buyer sentiment due to
tighter regulations imposed in 2013 and Indonesia's presidential and legislative
elections that will run until July 2014. The middle-market segment consists of
more first-time home buyers - a segment that was less affected by the new
regulations in 2013. Fitch expects this strategy and the quality of its
development projects to help ASRI maintain satisfactory credit metrics through
2014. However, its presales/gross debt ratio is likely to fall towards the 0.75x
threshold (end-2013: 1.05x), below which negative rating action may be
Limited but Growing Diversification: ASRI's presales grew around 50% to
IDR4.8trn in 2013. However they are considered small relative to higher-rated
developers. Fitch notes that the company's project diversification has improved,
with over 60% of its presales in 2013 stemming from outside of its main
development in Serpong (2012: 18%). Nevertheless ASRI remains less diversified
compared with higher-rated peers.
Established Track Record: The ratings recognise ASRI's low-cost, large land bank
of over 2,200 hectares, strategic advantages of its main development locations,
and track record in 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 expects ASRI to be able to
leverage on its success in Serpong for future project launches, as recently
demonstrated by the higher-than-expected sales for its Pasar Kemis projects.
Currency Risk Mitigated: ASRI has a policy of hedging the foreign currency risk
on the principal repayment of its US dollar borrowings. The company also targets
to maintain sufficient US dollar cash reserves to cover three to four coupon
payments at any given time. Fitch believes this strategy mitigates ASRI's
currency risk but does not fully compensate for circumstances of extreme
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
-A sustained increase in leverage such that the presales/gross debt ratio is
below 0.75x (2012: 1.5x) on a sustained basis.
-An increase in its exposure to non-core businesses
Positive rating action is not expected due to the cyclical nature of the
property development business, the company's small scale and limited project
diversification compared with higher-rated property developers.
FULL LIST OF RATING ACTIONS
PT Alam Sutera Realty Tbk
Long-Term, IDR affirmed at 'B+'; Outlook Stable
Senior unsecured rating affirmed at 'B+/RR4'
Outstanding USD235m 6.95% notes issued by Alam Synergy Pte Ltd and guaranteed by
PT Alam Sutera Realty Tbk, due in 2020, affirmed at 'B+/RR4'
Outstanding USD225m 9% notes issued by Alam Synergy Pte Ltd and guaranteed by PT
Alam Sutera Realty Tbk, due in 2019, affirmed at 'B+/RR4'