PEFINDO lowers ratings of Waskita Karya, bonds

(January 11, 202)--PEFINDO has lowered the ratings for PT Waskita Karya (Persero) Tbk (WSKT) and its shelf-registered (SR) bonds III and shelf-registered bonds IV at idBBB-. At the same time, we affirmed the ratings for its bond III and bond IV at idAAA(gg) as well as its Sukuk Mudharabah I at idAAA(sy)(gg). We revised the outlook for the corporate rating to CreditWatch with Negative Implication from stable.

The rating actions reflect our view on WSKT’s tight liquidity and elevated execution risk associated with the repayment of its upcoming bond maturity of IDR2.3 trillion due on February 23, 2023. WSKT relies on external funding to address the maturing bond given its limited sources from internal cash flow and we came to understand that the initial plan regarding the source of funds to repay the upcoming bond maturity was rescinded. WSKT is in the process of seeking waivers from its creditors to use cash flow from project payments as primary source of funds to repay the bond, from which the cash flow was previously intended for payments for tranche A creditor as stipulated in the master restructuring agreement (MRA).

The corporate rating reflects WSKT’s important role to the government, strong market position, and its benefits as a major state-owned construction company. However, the rating is constrained by its weak liquidity, weak credit metrics in addition to the volatile business environment in the construction sector. The idAAA(gg) rating reflects the full, unconditional, and irrevocable guarantee from the government of Indonesia for WSKT’s bond III, bond IV, and Sukuk Mudharabah I.

Failure to address upcoming bond maturity within the next 30 days, either through waivers from creditors or refinancing may lead to downgrades of more than one notch. We may remove the outlook from CreditWatch with Negative Implication if WSKT is able to address the upcoming bond maturity in a timely manner. Nonetheless, we may assign a negative outlook reflecting WSKT’s weak liquidity and credit metrics as well as challenges to funding sources.

WSKT is one of the largest construction companies in the country engaging mainly in providing construction works with a contribution of more than 87% of its revenue in the first nine months of 2022. Its other businesses include precast concrete, steel fabrication, toll roads, property, and energy. The Indonesian government held a 75.35% stake in WSKT as of September 30, 2022, with the remainder being publicly owned. (ends)