Reuters logo
Fitch Assigns Jababeka's USD Notes Final 'B+' Rating
November 14, 2017 / 5:08 AM / in 5 days

Fitch Assigns Jababeka's USD Notes Final 'B+' Rating

(The following statement was released by the rating agency) SINGAPORE, November 14 (Fitch) Fitch Ratings has assigned Indonesia-based PT Kawasan Industri Jababeka Tbk's (Jababeka, B+/Stable) USD111 million 6.5% senior unsecured notes due 2023 a final 'B+' rating with a Recovery Rating of 'RR4'. The notes are issued by Jababeka's wholly owned subsidiary, Jababeka International B.V., and are guaranteed by Jababeka 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 7 November 2017. The notes are rated at the same level as Jababeka's senior unsecured rating as they represent its unconditional, unsecured and unsubordinated obligations. The notes form part of the same series as the existing USD189 million 6.5% senior unsecured notes due 2023, which are also rated 'B+' with Recovery Rating of 'RR4'. Fitch believes Jababeka's financial profile will remain unchanged and consistent with its ratings, as the new notes will be mainly used to refinance its outstanding USD91 million 7.5% senior unsecured notes, which are due in 2019, and to extend the maturity profile of the company's debt, allowing it more flexibility to manage cash flow. KEY RATING DRIVERS Improving Fundamentals, Rising Competition: Indonesia's industrial sector is showing improved demand. However, Fitch believes Jababeka may face heightened competition and some profitability margin is at risk due to new product launches in its niche and regulatory developments. Jababeka's attributable presales increased by around 40% yoy in 2016, driven by stronger industrial land demand in both its Cikarang and Kendal townships. The trend has continued, with attributable presales rising by more than 30% yoy in the 12 months to 3Q17. Fitch sees some short- to medium-term demand risk due to regulatory developments and a competitive landscape. The government has announced plans to introduce a price ceiling on Indonesia's industrial land sales, which may affect presales as some consumers defer purchases pending greater clarity. Furthermore, Fitch believes competition for residential property in Cikarang may increase with new the launch of a new township in the area. Fitch expects Jababeka to book attributable presales of IDR1.3 trillion in 2017 and IDR1.4 trillion in 2018. Solid Recurring Cash Flows: Jababeka's rating is underpinned by a strong recurring cash flow stream from its 130MW power plant, which is operated under a 20-year power purchase agreement with the state electricity company, PT Perusahaan Listrik Negara (Persero) (BBB-/Positive). The power plant provides solid earning visibility and is a natural hedge against Jababeka's US dollar-denominated borrowings, as it operates under a cost pass-through mechanism with revenue pegged to US dollars. Fitch expects recurring interest coverage of around 1.0x in 2017 and 2018. Flexible Capex: Jababeka's capex will be limited to maintenance and development of its power plant and dry port facilities for the next few years. This, coupled with the discretionary nature of land acquisitions and construction costs that are partly contingent on meeting sales thresholds in the current period, allows the company to accumulate cash buffers and strengthen its liquidity profile. Fitch forecasts annual capex of around IDR200 billion over the medium term. Increasing Product Diversification: Jababeka successfully launched its second industrial township in Kendal last year, and its residential and commercial property business has accounted for around 40% of presales in the previous three years, compared with 14% in 2011. Fitch believes this provides the company with long-term diversification benefits. Low-Cost Land; Profitability Risk: Jababeka's credit profile is supported by its large, mature land bank in Cikarang of about 1,200 hectares; adequate for around 50 years of development assuming sales of 15 hectares per year. Cikarang is the company's most mature development, with established infrastructure and a captive industrial market. The Kendal township adds approximately 500 hectares of land bank, or 15 years of development assuming sales of 25 hectares per year. However, Fitch sees some profitability risk from the proposed caps on industrial land sale prices. Fitch forecasts Jababeka's overall real estate EBITDA margin at around 40% over the medium term. Forex and Project Concentration Risk: Jababeka's rating is constrained by its highly concentrated business in Cikarang, which Fitch expects to contribute around 70% of presales over the medium term. We expect concentration risk to gradually dissipate with the increasing contribution from the Kendal estate. The company is also exposed to currency fluctuations, as most of its debt is US dollar-denominated, while only half of its revenue is linked to the US dollar. DERIVATION SUMMARY Jababeka's rating may be compared with other Fitch-rated Indonesian property developers, such as PT Modernland Realty Tbk (B/Stable) and PT Bumi Serpong Damai Tbk (BSD; BB-/Stable). Fitch assesses Jababeka's credit profile as weaker compared with BSD's, as indicated by Jababeka's smaller development property scale, higher leverage, lower presale turnover and weaker recurring interest coverage. Compared with Modernland, Fitch believes Jababeka's stronger recurring interest coverage and the more strategic location of its industrial development, which is evident from gap in selling prices in their respective townships, supports its higher rating. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for the issuer include: - Attributable presales of IDR1.3 trillion in 2017 and IDR1.4 trillion in 2018 - Land acquisitions of around IDR300 billion in 2018 - Construction capex of around IDR800 billion in 2018 Key Recovery Rating Assumptions: - The recovery analysis assumes Jababeka would be liquidated in a bankruptcy rather than continue as a going-concern because it is an asset trading company. - Recovery analysis applied a haircut of 25% for IDR628 billion of receivables, 50% for IDR1.5 billion of investment property, 50% for IDR166 billion of affiliates and minority interest and other assets and no haircut for inventory and land bank. Fitch believes the company's reported land bank value, which is based on historical land cost, is at a significant discount to current market value and, thus, is already conservative. - Jababeka's power plant fixed assets and land bank located in Kendal are excluded from the liquidation value estimate as they are located under subsidiaries that are not part of the company's US dollar senior unsecured bonds' guarantor group. - 10% administrative claims are applied on the liquidation value. - Jababeka's bank loans of around IDR440 billion are secured by the company's land bank. Its remaining unused balance on its loan facilities are also assumed to be fully drawn. Jababeka is also expected to have around USD290 million of senior unsecured bonds outstanding, inclusive of the new issue. - Fitch estimates Jababeka's liquidation value to be able to cover 91%-100% of its secured and unsecured debt, corresponding to a 'RR1' Recovery Rating for the senior unsecured notes after adjusting for administrative claims. Nevertheless, Fitch has rated its senior unsecured bonds at 'B+' with a Recovery Rating of 'RR4' because, under Fitch's Country-Specific Treatment of Recovery Ratings criteria, Indonesia falls into the 'Group D' of countries based on creditor-friendliness. Instrument ratings of issuers with assets in this group are subject to a soft cap at the issuer's Issuer Default Rating. RATING SENSITIVITIES Positive rating action is not expected due to limited project scale and exposure to the highly cyclical industrial development business. Developments that may, individually or collectively, lead to negative rating action include: - Recurring EBITDA/interest expense at less than 1.0x for a sustained period (2017F: 1.2x) - Attributable presales/gross debt at less than 40% for a sustained period (2017F: 30%) - Net debt/net inventory at more than 60% for a sustained period (2017F: 47%) LIQUIDITY Sufficient Liquidity: As of end-2016 Jababeka had an adjusted cash balance of around IDR740 billion, short-term debt maturity of IDR20 billion and a committed unused credit facility of around IDR490 billion, which is only available to be drawn down until 1Q17. The company does not plan to construct a second power plant in the short to medium term, and its capex for the next few years will be limited to maintenance and development of its power plant and dry port infrastructure facilities. This, coupled with the discretionary nature of land acquisitions and construction costs that are partly contingent on meeting sales thresholds in the current period, allows the company to accumulate cash buffers and strengthen its liquidity profile Contact: Primary Analysts Bernard Kie Associate Director +65 6796 7216 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Secondary Analyst Hasira De Silva, CFA Director +65 6796 7240 Committee Chairperson Vicky Melbourne Senior Director +61 2 8256 0325 Date of Relevant Rating Committee: 16 August 2017 Summary of Financial Statement Adjustments - Fitch has proportionately consolidated the key financials of a number of Jababeka's subsidiaries to reflect their significant minority interests. In addition, Jababeka reports additions to land for development as cash flow from investments. Fitch has deducted this item from cash flow from investments and added it to working capital as cash paid to suppliers, as Fitch treats such payments as working capital outflows. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Country-Specific Treatment of Recovery Ratings (pub. 18 Oct 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Non-Financial Corporates Notching and Recovery Ratings Criteria (pub. 16 Jun 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