PEFINDO affirms “idA” rating for PT Hutama Karya (Persero)

(September 9, 2020)--PEFINDO has affirmed its “idA” rating for PT Hutama Karya (Persero) (PTHK). PEFINDO has also affirmed its “idAAA(gg)” rating for PTHK’s Shelf-Registered Bond I Year 2016-2017, which is fully guaranteed by the Indonesian government. We maintain the “negative” outlook for the corporate rating to anticipate further pressures on PTHK’s cash inflow due to lower revenue as an impact from the Coronavirus Disease (COVID-19 pandemic), which may result in slower demand for construction services and property, delays in some construction projects including the Trans-Sumatra project, and declining daily toll revenue due to the physical distancing policy.

We also anticipate that high financial leverage in its property segments will limit its financial capacity to service debt and interest payments in the near term.

An obligor rated idA has a strong capacity to meet its long-term financial commitments relative to that of other Indonesian obligors.

However, the obligor is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher-rated obligors.

A debt security rated idAAA has the highest rating assigned by PEFINDO. The obligor’s capacity to meet its long-term financial commitments on the debt security, relative to other Indonesian obligors, is superior.

The suffix (gg) in a particular rating incorporates security in the form of a government guarantee.

The corporate rating reflects PTHK’s important role to the government in providing Trans-Sumatra toll road infrastructure, its satisfactory market position in the construction industry as the benefit of being a state-owned construction company, and improving profitability margin. The rating is constrained by its aggressive financial profile, the relatively volatile construction business environment, and risks associated with entering new business segments.

The rating could be lowered if the impact of COVID-19 is higher than anticipated, leading to a deterioration of its financial profile.

Continued weak sales amid higher projected debt in its property segment could also undermine the rating. The rating could also be lowered if there is a significant decrease in government ownership and/or support. The outlook could be revised to stable if its cash inflow starts to recover and records positive growth month-over-month on a sustained basis.

PTHK is a state-owned construction company specializing in roads and bridges. It also has business interests in investment and manufacturing. In September 2014, it was assigned through Presidential Regulation (Perpres) No. 100/2014, which was then amended by Perpres No. 117/2015, as the institution responsible for the fundraising, technical planning, construction, operation and maintenance of 24 Trans-Sumatra toll roads with an estimated total length of 2,704 kilometers. It was also tasked to operate the Jakarta Outer Ring Road Section S (JORR-S) toll road from Pondok Pinang to Kampung Rambutan in 2016. In August 2017, through Perpres No. 81/2017, it was assigned to operate the Tanjung Priok toll road access. PTHK has three subsidiaries: one in the property sector, and two engaged in supplying materials (precast, asphalt, and steel) and construction to support the Trans-Sumatra projects. As of June 30, 2020, it was wholly owned by the Indonesian government. (ends)