PEFINDO: Ratings of PT Pembangunan Perumahan (Persero) Tbk lowered to “idA”, outlook revised to stable

(March 15, 2021)--PEFINDO has lowered the ratings for PT Pembangunan Perumahan (Persero) Tbk (PTPP) and its Shelf-Registered Bond II Year 2018 and Year 2019 to “idA” from “idA+”. PEFINDO has also lowered the rating for PTPP’s Shelf-Registered Perpetual Bond Phase I of IDR150 billion to “idBBB+” from “idA-“. It is rated two notches below PTPP’s corporate rating to incorporate its subordinated bond characteristics with full discretion on coupon deferral. The rating actions reflect our view on PTPP’s high capital expenditure (capex) for infrastructure related subsidiaries and supports to its property subsidiary, while the slowdown in construction activities and sharp decline from property revenues in the midst of pandemic will undermine its cash flow generation. As a result, we expect PTPP’s financial leverage for the next three years (2021-2023) will be aggressive with projected net debt to EBITDA ratio at more than 7x. Following the rating downgrade, the outlook for the corporate rating was revised to “stable” from “negative”. In addition, PTPP expects to fully repay its Shelf-Registered Perpetual Bond Phase I of IDR150 billion that will mature on May 15, 2021, using internal cash. As of December 31, 2021, it had cash and cash equivalent of IDR7.5 trillion.

An obligor rated idA has a strong capacity to meet its long-term financial commitments relative to that of other Indonesian obligors.

However, the obligor is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher-rated obligors.

Debt security rated idBBB denotes adequate protection parameters relative to other Indonesian debt securities. However, adverse economic conditions or changing circumstances are more likely to weaken the issuer’s capacity to meet its long-term financial commitments on the debt security. The plus (+) sign indicates that the rating is relatively strong within its category.

The corporate rating reflects PTPP’s strong presence in the national construction industry, diversified revenue sources, and relatively strong financial flexibility. The rating is constrained by aggressive financial leverage in the near to medium term following significant capex, risks from expansion into new businesses, and the volatile business environment.

The rating could be raised if PTPP improves its financial leverage and debt service coverage on sustained basis supported by more steady cash flow generation from its diversified business. The rating may be lowered if it incurs significantly higher debt than projected without a corresponding increase in EBITDA on a sustained basis.

Established in 1953, PTPP is one of the largest construction and engineering, procurement, and construction (EPC) companies in Indonesia. It is expanding into the property, realty and precast sectors, as well as heavy equipment rental and investment in the energy and infrastructure sectors. As of December 31, 2020, its shareholders were the Indonesian government (51.0%), the Employees Cooperative (Kopkar) (0.07%), and the public (48.93%). (ends)