PEFINDO affirms “idA-” rating to PT Waskita Karya (Persero) Tbk, outlook revised to negative

(January 13, 2020)--PEFINDO has affirmed its “idA-” ratings for PT Waskita Karya (Persero) Tbk (WSKT) and its shelf-registered Bonds I/2015, shelfregistered Bonds II/2016, shelf-registered Bonds II/2017 Series B, and shelf-registered Bonds IV/2019 which WSKT has yet to issue.

At the same time, PEFINDO has affirmed its “idA-” rating to WSKT’s shelf-registered bonds II/2017 Series A of IDR747 billion which will due on February 21, 2020. WSKT is expected to fully repay its maturing bond using internal cash from the proceeds of receivables.

In the fourth quarter of 2019, it had received IDR21 trillion from turnkey payments, including IDR10.3 trillion from PT Hutama Karya (Persero) related to Terbanggi Besar-Pematang Panggang (part of Trans Sumatra) toll road project. In addition, WSKT had received a total of IDR1.7 trillion from the divestment of its shares in two minority-owned toll roads in Solo-Ngawi and Ngawi-Kertosono-Kediri.

WSKT has also received a refund of IDR4 trillion in land bailout fund in the fourth quarter of 2019. The outlook for the corporate rating was revised to “negative” from “stable” to anticipate further deterioration on WSKT’s capital structure and cash flow protection measures. WSKT’s leverage, measured by net debt-to-EBITDA, rose to 14.8x in the nine months of 2019 (9M2019), while EBITDA interest coverage fell to 1.6x. Aside from its aggressive investment in toll roads, we understand that the significant increase in debt was also a result of further progress on turnkey projects and receivables from LMAN. Timely collection on these receivables and successful toll road divestments should allow WSKT to lower its financial leverage and improve credit profile.

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. The Minus (-) sign in a particular rating indicates that it is relatively weak within the respective rating category.

The rating reflects WSKT’s strong market position in the construction industry, its good margin on account of a diverse project segment, and its benefits as a major state-owned construction company. The rating is constrained by its high financial leverage, the relatively volatile business environment in the construction sector, and risks related to its aggressive toll road business expansion and divestment plan.

The rating may be lowered if WSKT’s leverage and interest coverage ratios remained above 10.0x and below 1.0x, respectively, over the next 12-18 months with limited likelihood for deleveraging. The outlook could be revised to stable if WSKT improves its financial leverage and interest coverage ratios to levels that are commensurate with an idA- rating on a sustained basis.

WSKT is one of the largest construction companies in the country. Its main business, providing construction works, contributed 97% of revenue in 2018. Its other businesses include precast concrete, toll roads, property, and energy. It has an extensive domestic marketing network with 33 marketing offices throughout the country. The Indonesian government held a 66% share on the Company as of September 30, 2019, with the remainder owned by public. (ends)