Indonesia Property Developers - Some Bruised, Some Battered - October 2020 - S&P Global
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Simon Wong
Director, Southeast Asia Property,
Indonesia Property Developers – Consumer, Telecom, REITS
Some Bruised, Some Battered Fiona Chen
Associate Director
Christina Lim
October 2020 Credit Analyst
Copyright © 2020 by S&P Global.
All rights reserved.Key Takeaways
Disparity of marketing sales performance among
Indonesia developers
Tight liquidity for most rated developers
Alam, Modernland – Different paths to financial distressCOVID-19 Battered Ratings On Two Developers
Rating History Of Indonesian Property Developers
Alam Sutera Lippo Jababeka Modernland Pakuwon
BB
BB-
BB
B
B-
CCC+
CCC
CCC-
CC
C
SD
C
Jan Feb Mar Apr May Jun Jul Aug Sept
Ratings as of Oct. 1, 2020. Source: S&P Global Ratings.
3Lack Of Land Sales Underpinned Sales Disparity
Table 1: 1H20 marketing sales performance varied among developers
Marketing sales, (IDR billion) 1H2020 Actual Year-on-year change S&P 2020 full-year estimates
Alam Sutera 1,360 1% 2,000-2,300
Lippo* 329 8% 900-1,000
Jababeka 255 -66% 650-700
Modernland§ 385 -77% 700-800
Pakuwon 501 -30% 1,000-1,100
*Lippo sales only include those at the holding company level. §Modernland sales exclude joint venture sales.
4Weakened Operating Cash Flow In The Sector
Thinner Operating Cash Flow Given Weak Marketing Sales
2019a 2020e
3,000
2,000
1,000
0
Bil. IDR
(1,000)
(2,000)
(3,000)
(4,000)
(5,000)
C Alam Sutera Lippo Jababeka Modernland Pakuwon
Bil.--Billion. IDR--Indonesian rupiah. a--Actual. e--Estimate. Source: S&P Global Ratings.
5Liquidity Pressure To Rise In 2020
Negative Discretionary Cash Flow Will Erode Cash And Liquidity
Opening cash 2020 discretionary cash flows
5,000
4,000
3,000
Bil. IDR
2,000
1,000
0
(1,000)
(2,000)
C Alam Sutera Modernland Lippo* Jababeka§ Pakuwon
*Reflect Lippo's holding company performance. §Jababeka's cash balance excludes JV's. Bil.--Billion. IDR--Indonesian rupiah. Source: S&P Global Ratings.
6Significant Bond Maturities In 2021 And 2022
Rising Default Risks Due To Increasing Likelihood Of Notes Restructuring/Distress Exchange
Outstanding US$ bond maturities (mil. US$)
Alam Sutera Modernland Jababeka Pakuwon Lippo
$115 $370
$300
April ‘21 $150
April ‘22
Oct. ‘23
Aug. ‘21 $420
$250
$417
Feb. ‘24
Jan. ‘25
$240 Oct. ‘26
April ‘24
2021 2022 2023 2024 2025 2026
Data as of Oct. 1, 2020. Mil.--Million. Source: Bloomberg.
7Alam Sutera, Modernland: Different Paths To
Financial Distress
Cash shortfall Other drivers and symptoms Outcome
Alam Sutera Back-to-back maturities in 2021 and 2022 Debt servicing current prior
to exchange offer for 2021
IDR888 bil. cash as of June Annual sales insufficient to support capital
and 2022 notes
30, 2020, post partial bond structure
call Deemed distressed
Reliance on lumpy land sales to support weak
exchange by S&P
US$115 mil. bond due in marketing sales
April 2021 Difficulty in securing further bank financing amid
COVID-19
Modernland Falling operating cash flow. Substantial, Missed domestic bond
uncollected land-related receivables principal payment
IDR180 bil. cash as of
March 31, 2020, post 1H sales largely unchanged from 1Q Missed August 2021 bond
unexpected repayment of coupon payment
Resignation of CFO
IDR90 bil. bank loan. Moratorium filed on 2021
Limited access to domestic funding
US$150 mil. of bond due in notes
August 2021
8PT Alam Sutera Realty Tbk. (CC/Negative/--)
Key Rating Drivers Key S&P Assumptions
Launched an exchange offer to address 2021 and 2020 (IDR billion)
2022 notes, which we viewed as a distressed Marketing & land sales 2,000 to 2,300
exchange (2019: 3,100)
Continued weak liquidity over the next 12 months Discretionary cash flow Negative 100 to
Negative discretionary cash flow will reduce cash negative 300
available for debt repayment Cash on hand 888 (end June 2020)
Key Monitoring Events Downside Scenario
Outcome of the exchange offer, including the level of Ratings will be lowered to ‘D’ when the debt
acceptance rate exchange is formalized.
Rating as of Oct. 1, 2020. IDR--Indonesian rupiah. Source: S&P Global Ratings.
9PT Modernland Realty Tbk. (ICR: Selective
Default (SD); 2021 note: 'D', 2024 note: 'CC')
What Happened Key Monitoring Events
Inability to convert land sales receivables to cash Potential moratorium on the 2024 notes
Weak marketing sales in 1H 2020 Potential restructuring terms for both US$ notes
Depleted cash balance by June
Failed to repay domestic notes of IDR150 billion,
matured on July 7, 2020
Failed to pay US$8 million coupon due on Aug. 30,
2020
Applied for moratorium on the 2021 notes
Rating as of Oct. 1, 2020. ICR--issuer credit rating. IDR--Indonesian rupiah. Source: S&P Global Ratings.
10PT Lippo Karawaci Tbk. (B-/Negative/--)
Key Rating Drivers Key S&P Assumptions
Steady liquidity erosion from sizable interest Holdco level 2020 (IDR billion)
expense and rental payments at holding company Marketing & land sales 900 to 1,000
level (2019: 713)
Reduced Puri Mall sales net cash proceeds Discretionary cash flow Negative 1,500 to
Reliance on asset monetization to backstop negative 2,000
liquidity Puri Mall sales proceed (after vendor financing)
No major debt maturity before 2025 1,000 to 2,000
Cash on hand ~3,000 (end June 2020)
Key Monitoring Events Downside Scenario
Completion of Puri Mall sale by March 2021 Further delay in sale of Puri Mall
Execution of further non-core asset sales Rapid depletion of asset base without
commensurate reduction in debt levels
COVID-19 outbreak impact on marketing sales
Inadequate liquidity cushion to service more than a
year of fixed interest and operating charges
Cash on hand (Hold Co.) plus operating cash flow
below IDR2 trillion
Rating as of Oct. 1, 2020. IDR--Indonesian rupiah. Source: S&P Global Ratings.
11PT Kawasan Industri Jababeka Tbk.
(B-/Stable/--)
Key Rating Drivers Key S&P Assumptions
COVID-19 reduced sales visibility and financial 2020 (IDR billion)
flexibility. Marketing & land sales 650 to 700
Thin interest servicing capability and negative free
Discretionary cash flow Negative 200 to
operating cash flow
negative 220
Overall recurring EBITDA now only covers 75%-
85% annual interest obligation Cash on hand 710* (end June 2020)
Limited liquidity headroom at the consolidated
(excluding joint ventures) level
Key Monitoring Events Downside Scenario
Management’s ability to tightly control cash burn Cash balance insufficient to cover annual interest
costs
Resumption of industrial land sales
Liquidity sources decline materially below 1.0X of
Any material impact from shareholder dispute on
uses
operations and liquidity
Ongoing lawsuit and shareholder tussle affects
company’s liquidity or repayment schedule
*Cash balance is based on consolidated, excluding JVs. Rating as of Oct. 1, 2020. IDR--Indonesian rupiah. Source: S&P Global Ratings.
12PT Pakuwon Jati Tbk. (BB/Stable/--)
Key Rating Drivers Key Assumptions
Adequate financial and liquidity buffer to ride out the 2020 (IDR billion)
pandemic Marketing & land sales 1,000 to 1,100
High recurring EBITDA-to-interest ratio of over 3x (2019: ~1,500)
provides downside resilience Discretionary cash flow 100 to 200
Established brand in Jakarta and Surabaya but Cash on hand 4,003 (end June 2020)
limited scale
Risks in geographical concentration and sector
Key Monitoring Events Downside Scenario
COVID-19 outbreak impact on marketing sales and Debt-to-EBITDA ratio consistently above 2.5x
rental income Departs from its cautious financial policies, resulting
Potential acquisition opportunities leveraging on from a steep rise in capital spending or sizable land
solid balance sheet and cash on hand acquisitions
Credit profile of Pakuwon’s parent company
deteriorates due to rising debt
Rating as of Oct. 1, 2020. IDR--Indonesian rupiah. Source: S&P Global Ratings.
13Appendix – Indonesia Property Sector Indicators
Recovery Of Sales Growth To Strengthen Property Price Index Remains Stable In Key
Further From 2Q20 Cities
Indonesia property sales growth (quarterly) Indonesia residential property price index (quarterly)
Small house Medium house Big house Total Semarang Surbaya Jakarta
40 400
30 350
20 300
Property price index
10
250
0
200
%
(10)
150
(20)
100
(30)
50
(40)
(50) 0
C C
Q1--First quarter. Q2--Second quarter. Q3--Third quarter. Q4--Fourth quarter. Q1--First quarter. Q2--Second quarter. Q3--Third quarter. Q4--Fourth quarter.
Source: Bank of Indonesia: Residential property survey. Source: Bank of Indonesia: Residential property survey.
14Appendix – Indonesia Property Sector Indicators
Lower Mortgage Rate Unlikely To Stimulate Demand Amid COVID-19 Outbreak
Mortgage rate
9.6
9.43
9.4 9.34
9.2
9.12
%
9.0
8.92
8.85
8.8
8.6
8.4
C
Q2 19 Q3 19 Q4 19 Q1 20 Q2 20
Q1--First quarter. Q2--Second quarter. Q3--Third quarter. Q4--Fourth quarter. Source: Bank of Indonesia: Residential property survey.
15Appendix – Foreign Currency Hedge
Effectiveness Reduced
Depreciation in rupiah toward 16,000 range will reduce effectiveness of hedges for most developers
ASRI and MDLN most exposed given USD bond maturities in 2021
Interest payments to increase 6%-13% as they are mostly unhedged, but impact manageable
Only LPKR hedges 2026’s coupons up to 17,000
Current FX rate
USD/IDR Hedging Range
Bond % of principal
Type of hedge
maturing hedged 11,500 12,500 13,500 14,500 15,500 16,500
2021 Cashed out
ASRI Call spreads
2022 72%
2021 100%
MDLN Call spreads
2024 100%
67% hedged +
KIJA Call spreads 2023
some natural hedge
PWON Call spreads 2024 100%
2025 100%
LPKR Call spreads
2026 100%
Source: Company financial statements and presentations. *Upper and lower hedging range estimated based on weighted average of
hedging contracts.
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