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Fitch Publishes Pakuwon's Rating; Rates USD Notes 'B+(EXP)'/RR4
June 19, 2014 / 3:42 AM / 3 years ago

Fitch Publishes Pakuwon's Rating; Rates USD Notes 'B+(EXP)'/RR4

(The following statement was released by the rating agency) JAKARTA/SINGAPORE/SYDNEY, June 18 (Fitch) Fitch Ratings has assigned PT Pakuwon Jati Tbk's (Pakuwon) proposed US dollar notes due in 2019 a 'B+(EXP)' rating, with a Recovery Rating of 'RR4'. At the same time, the agency has published Pakuwon's Foreign Currency Long-Term Issuer Default Rating (IDR) and Foreign Currency Senior Unsecured Rating at 'B+'. The Outlook is Stable for the Foreign Currency Long-Term IDR. The new notes will be issued by Pakuwon Prima Pte Ltd and guaranteed by Pakuwon and some of its subsidiaries. The final rating is contingent upon receipt of the final documents conforming to information already received. The notes are rated at the same level as Pakuwon's senior unsecured debt rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company. KEY RATING DRIVERS Support from Investment Property Portfolio: Pakuwon is a diversified real estate developer based in Indonesia. The company's property portfolio includes retail, residential, commercial and hospitality developments. Its ratings reflect its solid investment properties, which contributed 48% of total revenue in 2013. Furthermore, 42% of the revenue was derived from its shopping mall and office leasing operations which have a long-term lease profile. These investment properties generated solid recurring EBITDA of IDR778bn (USD67m) and recurring EBITDA/interest coverage of 3.8x, which along with the company's strong liquidity position will help it manage any cyclicality and volatility of property development. Quality Assets: The company's investment portfolio is spread across four well established and strategically located prime locations in Jakarta and Surabaya. The main projects comprise of mixed use high rise developments (apartments, office, retail, and sometimes hotel). Pakuwon's malls, while providing stable recurring revenue, anchor each of its land banks in Jakarta and Surabaya, thereby attracting residents and office tenants while servicing as focal points for local communities. The company has a strong track record of managing its lease retail occupancy, and consistently achieves above industry average occupancy. Higher Margin than Peers: Fitch expects Pakuwon to generate EBITDA margin above 50% in the medium term, supported by a low cost land bank and the company's ability to create value in its superblocks. Pakuwon posted EBITDA margin of 56% in 2013 (2012: 55.6%), higher than other rated developers such as PT Alam Sutera Realty Tbk (B+/Stable) with 42% and PT Lippo Karawaci Tbk (BB-/Stable) with 27%. Fitch believes that such a high margin will provide some pricing flexibility during a downturn in the property cycle. Limited Scale and Diversification: Pakuwon's rating is constrained by its limited scale and project diversification. Fitch expects the company to generate most of its cash flows from its current established super blocks in the medium term. Based on the current rate of development, the company's land bank of 394 hectares would be sufficient for more than 10 years of development. Although the company will launch a new residential project in West Surabaya in 2H2014, Fitch notes that its projects and cash flows are less diversified than higher rated peers. RATING SENSITIVITIES Positive rating action is not anticipated in the medium-term given the company's limited scale, projects, and cash flow diversification. Negative: Future developments that may, individually or collectively, lead to negative rating action include: - Sustained deterioration of recurring EBITDA from investment properties (IP) /interest below 2.5x - net debt/net inventory (net inventory defined as IP + Inventory + Property and Equipment - Advances) rises above 50% on a sustained basis - weakening of business profile as evidenced by significant rise in vacancy rates or a sustain fall in rentals - any evidence of weakening in liquidity Contact: Primary Analyst Hasira De Silva, CFA Director +65 67967240 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Secondary Analyst Olly Prayudi Associate Director +62 21 29886812 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 Applicable criteria, 'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' dated 5 August 2013is available at Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here National Scale Ratings Criteria 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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