PEFINDO affirms “idA-” ratings for PT Adhi Karya (Persero) Tbk and its bonds, outlook is revised to negative
Monday, April 13 2020 - 09:48 PM WIB
(April 9, 2020)--PEFINDO has affirmed its “idA-” ratings for PT Adhi Karya (Persero) Tbk (ADHI), its Shelf Registered Bond II Year 2017, and Shelf Registered Bond II Year 2019. The outlook for the corporate rating was revised to “negative” from “stable” to anticipate deterioration in ADHI’s credit profile due to higher debt to finance its investments in infrastructure projects as well as growing prefunding for working capital owing to the shifting trends from government projects using turnkey scheme payment. In addition, the coronavirus disease 2019 (COVID-19) outbreak may potentially result in construction delays due to physical distancing policy to anticipates the spread of COVID-19, consequently affecting ADHI’s revenue and property sales targets, thus weakening its overall credit performance.
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 indicates that the rating is relatively weak within the respective rating category.
The corporate rating reflects ADHI’s strong presence in the domestic construction market, the advantages of a state-owned construction company, and margin improvement due to business diversification and turnkey project. The rating is constrained by its aggressive financial leverage and weak cash flow protection measures, risks related to new businesses, and relatively volatile business sector.
The rating may be lowered if ADHI’s financial leverage becomes more aggressive and interest coverage ratio weakens due to higher investment and working capital needs that are financed by debts. The outlook could be revised to stable if ADHI improves its financial profile to levels that are commensurate with an idA- rating on sustained basis.
ADHI is one of the largest construction companies in Indonesia, established in 1960. Its business is divided into four major categories: construction services, engineering procurement construction (EPC), property & realty, investment infrastructure. At the end of 2019, its shareholders were the Indonesian government (51.0%) and the public (49.0%). (ends)