PEFINDO affirms “idBBB+” ratings for PT Waskita Toll Road and its MTN, outlook revised to negative

(January 22, 2020)--PEFINDO has affirmed its “idBBB+” ratings for PT Waskita Toll Road (WSTR) and the Company’s shelf-registered Medium Term Notes (MTN) II Phase I Year 2018 and MTN Year 2019. However, we revised the outlook for WSTR’s corporate rating to “negative” from “stable” following our revision on its parent, PT Waskita Karya (Persero) Tbk (WSKT)’s rating outlook to “negative” from “stable”. We consider WSTR as core subsidiary of WSKT. Based on our parent support methodology, any changes in parent’s corporate rating and outlook will directly affect core subsidiary’s corporate rating and outlook.

An obligor rated idBBB has an adequate capacity to meet its long-term financial commitments relative to that of other Indonesian obligors.

However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments. The Plus (+) sign indicates that the rating is relatively strong within the respective rating category.

The rating reflects WSTR’s position as a core subsidiary to its parent, prospective toll road projects, and better valuation through connectivity. However, the rating is constrained by the Company’s aggressive capital structure in the near to medium term, high dependency on asset divestment to support business expansion, and business risk related to the development of new toll roads.

The rating could be downgrade if its parent could not improve its leverage and interest coverage ratio over the next 12-18 months with limited likelihood for deleveraging. At the same time, Company fails to divest its assets as planned and followed by incurring higherthan-expected debts, which could weaken its capital structure and cash flow protection. The rating could be under pressure if the Company could not complete the toll road construction on its majority-owned subsidiaries, which could delay the cash inflow from the toll road revenue, and if there is a significant drop in parent support. 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. It is followed by WSTR’s ability to execute its divestment plan as planned in order to maintain its cash flow healthy while improving its capital structure significantly and maintaining its profitability increase on the sustainable basis.

Engages in toll road industry, it holds shares on 18 toll road concessions (Pemalang-Batang, Bekasi-Cawang-Kampung Melayu, SoloNgawi, Ngawi-Kertosono-Kediri, Cinere-Serpong, Cimanggis-Cibitung, Bogor-Ciawi-Sukabumi, Depok-Antasari, Medan-Kualanamu, Semarang-Batang, Pejagan-Pemalang, Kanci-Pejagan, Pasuruan-Probolinggo, Kayu Agung-Palembang-Betung, Krian-Legundi-Bunder, Kuala Tanjung-Tebing Tinggi-Parapat, Cileunyi-Sumedang-Dawuan, and Cibitung-Cilincing) as of September 30, 2019. It is also in the process of adding Penajam-Balikpapan toll road in its portfolio. There are 11 of them are already in operations where three of them are consolidated into WSTR’s revenue in the first nine months of 2019: Pemalang-Batang, Bekasi-Cawang-Kampung Melayu, and BogorCiawi-Sukabumi. As of September 30, 2019, WSTR’s shareholders’ structure consisted of PT Waskita Karya (Persero) Tbk (79.88%), PT Taspen (Persero) (9.07%), and PT Sarana Multi Infrastruktur (Persero) (11.05%). (ends)