PT Alam Sutera Realty Tbk. Ratings Placed On CreditWatch Negative On Slower-Than-Expected Refinancing Progress

  • Indonesia-based property developer PT Alam Sutera Realty Tbk. still needs nearly US$110 million to refinance its US$175 million notes maturing in April 2021.
  • In our view, tighter funding conditions, the rupiah's depreciation, and the uncertain operating environment amid the evolving COVID-19 situation could delay or complicate the company's refinancing efforts, especially given another sizable maturity due in 2022.
  • On March 24, 2020, S&P Global Ratings placed the 'B-' long-term issuer credit rating on Alam Sutera and the 'B-' long-term issue rating on the company's guaranteed senior unsecured notes on CreditWatch with negative implications.
  • The CreditWatch negative placement reflects a one-in-two likelihood of a downgrade within the next two to three months if Alam Sutera is unable to raise sufficient funds to address the maturity in April 2021 and lengthen its debt maturity profile.
SINGAPORE (S&P Global Ratings) March 24, 2020--S&P Global Ratings today took the rating actions listed above. We placed the ratings on CreditWatch with negative implications because Alam Sutera has not, to date, raised sufficient funding to reduce refinancing risks associated with its US$175 million notes maturing in April 2021.
Bank loans raised so far are insufficient to address the company's refinancing requirements amid tightened funding conditions.
Alam Sutera secured an Indonesian rupiah (IDR) 200 billion bank loan from PT Bank Permata Tbk. and an IDR500 billion facility from PT Bank Central Asia Tbk., which will be used to call US$60 million of the 2021 maturity. The company also expects cash receipts of US$20 million-US$25 million by end-March 2020 as it realizes hedging benefits.
Although the bank loans demonstrate Alam Sutera's ability to tap new funding sources, they fall short of the refinancing requirement in 2021. Alam Sutera still needs to raise about US$110 million for a full refinancing of the 2021 notes. At the same time, refinancing options have become increasingly limited, in our opinion. Alam Sutera has historically depended on international bond markets for refinancing and capital raising. However, near-term access to markets has been impaired as credit spreads widen and issuances stall. Access to markets will be increasingly dependent on a recovery in market sentiment. This could be some time away given the rapid increase in the country's COVID-19 cases and the recent sharp depreciation in the rupiah.
We believe Alam Sutera could utilize part of its cash balance, which we estimate at a little over IDR1 trillion currently, toward the repayment of the 2021 notes. We also recognize that the company needs to maintain sufficient liquidity buffer to deal with working capital swings and replenish its land bank.
Alam Sutera has indicated that it is in final talks with another bank which, if successful, could bring in additional funds. However, the time frame remains uncertain.
Operating cash flows will be insufficient to bridge the funding gap, given weak consumer sentiment and lack of major land sales.
We expect Alam Sutera to record lower marketing sales of IDR2.0 trillion-IDR2.5 trillion in 2020 amid new launches, and about IDR300 billion of land sales to China Fortune Land Development Co. Ltd. This is lower than its marketing and land sales of IDR3.1 trillion in 2019. The company anticipates marketing sales of about IDR4 trillion for 2020, which we regard as ambitious.
We estimate Alam Sutera's discretionary cash flows, after taking into account working capital movements, capital spending, and dividends, will be negative IDR100 billion-IDR300 billion in 2020. This will prevent the company from bolstering its liquidity.
The main rating emphasis is the refinancing of Alam Sutera's debt over the next 24 months. We therefore place less emphasis on operating forecasts for 2021 and 2022. We also lack good visibility on marketing sales beyond 2020, given the evolving COVID-19 situation and sharp currency depreciation.
Alam Sutera faces sustained liquidity pressure due to another sizable maturity in 2022.
Apart from the 2021 notes, Alam Sutera has US$370 million of notes due in March 2022. This will result in sustained liquidity pressure over the next two years, unless the company proactively refinances ahead of the 2022 maturity.
We aim to resolve the CreditWatch as we get more clarity on the company's fundraising progress.
We could lower the ratings by one or more notches if Alam Sutera does not fully address the maturity of its US$175 million notes due April 2021 in the next two to three months. We could also lower the ratings if the company continues to refinance with short-tenor debt, resulting in a chunky debt maturity profile and an unsustainable capital structure.
A downgrade could also happen if the company's operating environment significantly weakens over the next few months as a result of the COVID-19 outbreak, resulting in a deterioration in cash flow generation, significant cash burn, or what we assess to be an unsustainable leverage level.
We will also likely lower the ratings if Alam Sutera undertakes capital market transactions related to its 2021 or 2022 notes that we assess as constituting a distressed exchange, including capital market purchases below par.

We may affirm the ratings with a negative outlook if Alam Sutera is able to fully refinance the 2021 notes with longer-tenor debt.
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