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Fitch: Bumi Serpong's Tap Issue to Fund Capex
May 9, 2017 / 8:12 AM / 7 months ago

Fitch: Bumi Serpong's Tap Issue to Fund Capex

(The following statement was released by the rating agency) SINGAPORE/JAKARTA, May 09 (Fitch) Indonesia-based property developer PT Bumi Serpong Damai Tbk's (BSD, BB-/Stable) proposed tap issuance off 5.5% senior unsecured US dollar denominated notes due in 2023 will be largely deployed to fund expansionary capex, says Fitch Ratings. The agency also says the tap issue of up to USD100 million will not affect BSD's 'BB-' Long-Term Issuer Default Rating (IDR) or the 'BB-' rating on its outstanding senior unsecured US dollar denominated bonds. The proposed tap to the company's 5.5% 2023 bonds are rated at the same level as BSD's Long-Term IDR as they represent its direct, unconditional, unsecured and unsubordinated obligations. BSD's US dollar bonds are issued by its subsidiary, Global Prime Capital Pte. Ltd and are guaranteed by BSD. BSD's ratings reflect its robust property sales in 2016, which outperformed that of most peers despite weak domestic property demand. BSD's performance was supported by access to the largest landbank among domestic developers of more than 48 million square metres, which provided significant product and price-point diversity and allowed BSD to tailor its offerings to suit demand patterns. The company was able to sell ample residential inventory in the IDR1 billion-1.5 billion price range to meet robust demand from first-time home buyers. Demand from buyers of second and third properties for investment purposes and for larger properties was weak amid the government's clampdown on income tax evasion. BSD's ratings also reflect solid recurring cash flow from its portfolio of 17 operational investment properties and two hotels, which generated EBITDA of more than IDR1 trillion in 2016 (including dividend income from associates) and provided robust coverage of net interest expense of 2.6x at end-2016. BSD expects to spend around IDR2 trillion annually over the next three years to expand its portfolio of investment properties and hotels. The recurring cash flow generated by these properties provides BSD's creditors with more protection during cyclical downturns than property sales. More than 88% of BSD's 2016 recurring revenue stemmed from its investment properties, with the balance coming from its hotels. Overall occupancy was strong at 95%, although investment-property EBITDA growth lagged Fitch's expectations due to slower ramp-up of some of BSD's newer assets. Asset concentration is modest, with the five largest assets accounting for 60% of recurring revenue. BSD has a record of maintaining a strong balance sheet, with leverage - as measured by net debt/adjusted inventory - estimated at around 20% as of end-2016. However, leverage rose from 11% in 2015 due to acquisitions and investment property development as well as greater participation in joint ventures with domestic and international developers. Fitch estimates that BSD's leverage would have increased to 27% at end-2016 if the joint ventures' debt and assets were proportionately consolidated. However, BSD's leverage is still considerably lower than the 40% threshold above which Fitch may consider negative rating action. Most of BSD's investment property portfolio is held through its 88.56%-owned listed subsidiary, PT Duta Pertiwi Tbk (DUTI). A significant dilution in BSD's ownership of DUTI, although not likely to occur in the medium term, may lower BSD's access to DUTI's recurring cash flow and increase risk to BSD's creditors. Fitch deducts the post-tax profits attributable to minority interest within the group from recurring EBITDA when computing the recurring EBTIDA net interest coverage ratio to account for the risk of cash leakage to minorities. Contact: Hasira De Silva, CFA Director +65 6796 7240 Fitch Ratings Singapore Pte Ltd One Raffles Quay South Tower, #11-22 Singapore 048583 Bernard Kie Associate Director +6221 2988 6815 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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