PEFINDO: PT Hutama Karya (Persero) rated “idA”, outlook revised to stable

(May 5, 2021)--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 have revised the outlook for the corporate rating to “stable” from “negative” to reflect our view on the stronger degree of likelihood of government support, particularly in fulfilling financing gaps on Trans-Sumatra toll road projects. We view the government has strong control in completing the projects as it is among top priority of strategic national projects, thus we expect the government to provide continuous supports. PTHK had obtained capital injection of IDR27.1 trillion in 2015-2020 and plans to receive additional IDR6.2 trillion in 2021 to support this project. This should compensate PTHK’s weakening standalone credit profile, as we project PTHK’s cash flow generation excluding its toll road business will remain deteriorate in the near term as the impact of slower economic growth due to pandemic. High financial leverage in its property segment also contributes to lower PTHK’s financial capacity to service its debt and interest payments.

An obligor rated idA has a strong capacity to meet its long-term financial commitments relative to those of other Indonesian obligors. However, it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higherrated obligors.

A debt security rated idAAA has the highest rating assigned by PEFINDO. The issuer’s capacity to meet its long-term financial commitments on the debt security, relative to those of other Indonesian issuers, 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 a benefit of being a state-owned construction company, and high order book from Trans-Sumatra toll road projects. The rating is constrained by its aggressive financial profile, the relatively volatile construction business environment, and risks to diversify revenue stream in the medium term.

The rating may be raised if PTHK significantly strengthens its market position in the domestic construction industry aside of Trans- Sumatra construction projects, and demonstrates steady cash flow generation through its expansion strategy, particularly in the property segment, which would help improve its profitability margins. The rating could also be raised if we see stronger linkage and support from government for PTHK.

The rating could be lowered if the Company fails to reach the revenue and/or EBITDA targets from its non-toll road business, and if its additional debt exceeds projections, resulting in 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.

PTHK is a state-owned construction company specializing in roads and bridges, and 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 (km). 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 December 31, 2020, it was wholly owned by the Indonesian government. (ends)