PEFINDO: PT Waskita Karya (Persero) Tbk rated “idBBB” with negative outlook

(February 10, 2022)--PEFINDO has affirmed the ratings for PT Waskita Karya (Persero) Tbk (WSKT) and its shelf-registered bonds III, and shelf-registered bonds IV at “idBBB”. We also affirmed the rating for its bond III 2021 at “idAAA(gg)”. At the same time, we also affirmed the rating for its maturing shelf-registered bonds II 2017 series B of IDR910 billion, which will due on February 22, 2022, at “idBBB”. WSKT is expected to fully repay its maturing bond using internal cash which will come from construction project payments and divestment proceeds.

The outlook for the corporate rating is revised to “negative” from “stable” to anticipate heightening refinancing risks from its upcoming bond maturities in May and October totaling IDR2.1 trillion. Originally, WSKT plans to refinance all of its bond maturities in 2022 using proceeds from its corporate action plans but we come to understand that these plans are still under process which has led to delays in its completion such that it is outside the expected timeline. The outlook also reflects the execution risk on the Company’s corporate action plans as it is contingent on market's appetite and conditions, which could become more challenging for WSKT following the recent default of PT Waskita Beton Precast Tbk (WSBP), one of its subsidiaries, as a result of the court’s decision to put WSBP in the temporary Suspension of Debt Payment Obligations (PKPU).

An obligor rated idBBB has an adequate capacity to meet its long-term financial commitments relative to those of other Indonesian obligors. However, adverse economic conditions or changing circumstances are more likely to weaken its capacity to meet its financial commitments.

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 other Indonesian issuers, is superior. The suffix (gg) in a particular rating incorporates security in the form of government guarantee.

The corporate rating reflects WSKT’s important role to the government, strong market position in the construction sector, and its benefits as a major state-owned construction company. However, the rating is constrained by its weak liquidity and high leverage in addition to the volatile business environment in the construction sector.

The rating may be lowered if we believe that our assessment of the government’s support of WSKT weakens. Significantly weaker access to external funding, particularly with state-owned banks, may also trigger a downgrade in its rating as it will reduce WSKT’s ability to carry out its operational activities, hence, exposing it to project completion delays and lower profitability. Weaker access to external funding will also expose WSKT to higher liquidity and refinancing risks. The rating may also be subject to a downgrade if WSKT continuously fails to win adequate new contracts, resulting in insufficient revenue visibility. We may revise the outlook to stable if there is significant progress on the corporate action plan, reducing refinancing risk and improving the funding and liquidity profile of WSKT.

WSKT is one of the largest construction companies in the country engaging mainly in providing construction works with a contribution of 87% of its revenue in the nine months of 2021. Its other businesses include precast concrete, toll roads, property, and energy. It has an extensive domestic marketing network with 10 branch offices throughout the country and 3 overseas branch offices. The Indonesian government held a 75.35% stake in WSKT as of January 31, 2022, with the remainder being publicly owned. (ends)