Moody's affirms Pakuwon Jati's Ba2 ratings and changes the outlook from Stable to Positive
Singapore, May 02, 2023 -- Moody's Investors Service has affirmed the Ba2 corporate family rating of Pakuwon Jati, Tbk. (P.T.).
Moody's has also affirmed the Ba2 senior unsecured rating on Pakuwon Jati's 2028 bond. The bond is unconditionally and irrevocably guaranteed by most of Pakuwon Jati's subsidiaries.
At the same time, Moody's has changed the outlook on all ratings to positive from stable.
"The outlook revision to positive from stable reflects Pakuwon Jati's strong credit metrics and its very good liquidity, which are supported by its strong recurring income generation, large cash balance and net cash position," says Rachel Chua, a Moody's Vice President and Senior Analyst.
Pakuwon Jati's key credit metrics will remain solid over the next two years. The company's recurring EBITDA coverage of interest paid will stay above 6.0x, while its leverage, as measured by adjusted debt/EBITDA, will remain stable at around 2.0x over the next 12-18 months.
Moody's also expects earnings from Pakuwon Jati's investment properties will form the bulk of its total earnings over the next two years. Its debt/recurring EBITDA will likely improve to 3.0x-3.5x during this period.
Pakuwon Jati's recurring income base of IDR3,870 billion accounted for 65% of its total revenue in 2022. Average occupancy at its retail malls was healthy at around 94% in 2022.
Moody's expects the recovery momentum will continue in 2023, with occupancy in the mid 90% range.
Despite weaker marketing sales since 2019 and the implementation of IFRS15 accounting standards in 2020, Moody's expects Pakuwon Jati's annual revenue will remain stable at around IDR6 trillion in 2023-24. This is largely because of a recovery in its recurring revenue base that will offset weaker development revenue. The end of rent reliefs to its retail mall tenants, and an increase in shopper traffic as Indonesia recovers from the coronavirus pandemic, will support the company's leasing income from retail malls.
The company achieved IDR1.5 trillion of marketing sales in 2022, a slight increase of 5% from 2021. Moody's expects its marketing sales will stay broadly stable in 2023 and 2024 to IDR1.45 trillion- IDR1.5 trillion on the back of slightly dampened demand as inflation and interest rates remain high.
The Ba2 ratings also take into account the company's continued prudence in its financial policy. As of 31 December 2022, Pakuwon Jati was in a net cash position and its next material maturity is in 2028
when its $400 million of bonds come due. The ratings also reflect the company's measured approach towards growth which has historically been funded with internal cash, as well as its measured dividend distributions.
Pakuwon Jati's liquidity will remain very good over the next 12-18 months. As of 31 December 2022, the company had cash and cash equivalents of IDR7.4 trillion. Moody's expects Pakuwon Jati to generate around IDR3.4 trillion of operating cash flow, which is more than sufficient to cover its estimated dividend payment of around IDR230 billion and projected capital spending of around IDR3.2 trillion over the next 18 months.
The positive outlook reflects Moody's expectation that Pakuwon Jati's earnings over the next 12-18 months will continue to recover to pre-pandemic levels, through a mixture of largely stable development income and improving recurring income. It also reflects Moody's expectation that the company will continue to maintain financial discipline while pursuing growth.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade Pakuwon Jati's ratings if (1) its earnings improvement continues over the next 12-18 months as it fully recovers from the pandemic; (2) it continues to maintain diversified sources of income across development and investment property; (3) it maintains strong financial metrics; and (4) its liquidity remains.
Credit metrics that would support an upgrade include adjusted debt/recurring EBITDA below 3.0x- 3.5x and recurring EBITDA/interest expense above 4.0x on a sustained basis.
Given the positive outlook, a ratings downgrade is unlikely. However, Moody's could change the rating outlook to stable from positive if (1) the company fails to implement its business plans; (2) it embarks on an aggressive development growth strategy; or (3) there is a protracted weakness in its operations because of worsening macroeconomic conditions or soft property market conditions.
Credit metrics that would support an outlook stabilization include adjusted debt/recurring EBITDA above 4.0x-4.5x and recurring EBITDA/interest expense below 2.0x on a sustained basis.
The principal methodology used in these ratings was Homebuilding and Property Development published in October 2022 and available at https://ratings.moodys.com/api/rmc-documents/394515. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Pakuwon Jati, Tbk. (P.T.) is listed on the Indonesia Stock Exchange and controlled by the Tedja family. The company develops, manages and operates retail malls, office buildings, hotels, condominium towers and residential townships in Surabaya and Jakarta.
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