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

(March 14, 2022)--PEFINDO has affirmed the ratings for PT Waskita Karya (Persero) Tbk (WSKT), its shelf-registered bonds III Series B, 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 III series A of IDR484 billion, which will be due on May 16, 2022, at “idBBB”. WSKT is expected to fully repay its maturing bonds using proceeds from its corporate action plans. We maintain the outlook for the corporate rating at “negative” to anticipate the heightening refinancing risks from its upcoming bond maturities, particularly the bond due in October amounted to IDR1.6 trillion. We are of the view that there is execution risk related to WSKT’s corporate action plans as it is contingent on market's appetite and conditions, which could become more challenging for WSKT following the 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). As an alternative source of repayment for the maturing bond on May 16, 2022, WSKT will use internal cash, obtained from credit withdrawal from syndicated creditors on the basis of reimbursement related to project construction progress.

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. (ends)