Waskita Toll Road’s ratings lowered to “idBBB”, maintain negative outlook

(July 20, 2020)--PEFINDO has lowered the ratings for PT Waskita Toll Road (Waskita Toll Road) and its Medium Term Notes (MTN) II Year 2019 to “idBBB” from “idBBB+” following our revision on the rating of its parent, PT Waskita Karya (Persero) Tbk (Waskita Karya) to “idBBB+” from “idA-”. Based on our parent support methodology, any change in the parent’s corporate rating and/or outlook will directly affect the core subsidiary’s corporate rating and/or outlook. The outlook for the corporate rating is maintained at “negative”. Waskita Toll Road plans to repay the maturing MTN on October 1, 2020 using cash inflow from bailout fund for period of July to September 2020 and internal cash flow or cash inflow from divestment of its subsidiaries. As of March 31, 2020, the Company had cash and cash equivalent of IDR2.5 trillion.

An obligor rated idBBB has an adequate capacity to meet its long-term financial commitments relative to that of other Indonesian obligors.

However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.

The rating reflects Waskita Toll Road’s position as a core subsidiary to its parent, prospective toll road projects, and better valuation through connectivity. However, the rating is constrained by the Company’s aggressive capital structure in the near to medium term, high dependency on asset divestment to support business expansion, and business risk related to the development of new toll roads.

The rating could be lowered if the rating of its parent is lowered. Waskita Toll Road’s rating could also be lowered if it fails to divest its assets as planned and followed by incurring higher-than-expected debts, which could weaken its capital structure and cash flow protection. The rating could also be under pressure if the Company could not complete the toll road construction on its majority-owned subsidiaries, which could delay the cash inflow from the toll road revenue, and if there is a significant drop in the parent support. The outlook could be revised to stable if Waskita Karya improves its financial leverage and interest coverage ratios on a sustained basis supported by strong contract backlog which provides revenue visibility over the next few years. It should be followed by Waskita Toll Road’s ability to execute its divestment plan as planned in order to maintain its cash flow healthy, while improving its capital structure significantly and maintaining its profitability increase on the sustainable basis.

Engages in the toll road industry, Waskita Toll Road held shares on 16 toll road concessions as of March 31, 2020. It is also in the process of adding the Penajam-Balikpapan toll road in its portfolio. Total 10 of them are already in operations, but only three of them (PemalangBatang, Bekasi-Cawang-Kampung Melayu, and Bogor-Ciawi-Sukabumi) are consolidated into Waskita Toll Road’s revenue in the first three months of 2020. As of March 31, 2020, Waskita Toll Road’s shareholders were PT Waskita Karya (Persero) Tbk (80.56%), PT Taspen (Persero) (8.29%), and PT Sarana Multi Infrastruktur (Persero) (11.14%). (ends)