February 9, 2017 / 3:06 AM / a year ago

Fitch Affirms Ciputra Residence at 'A-(idn)'; Outlook Stable

(The following statement was released by the rating agency) JAKARTA, February 08 (Fitch) Fitch Ratings has affirmed PT Ciputra Residence's National Long-Term Rating and National senior unsecured rating at 'A-(idn)'. The Outlook is Stable. At the same time, the agency has also affirmed the National Rating of 'A(idn)' on the company's IDR500bn of bonds that have a 20% partial credit guarantee from the International Finance Corporation. The affirmation of the National Long-Term rating at 'A-(idn)' is on a standalone basis. Fitch views the linkage between Ciputra Residence and its 99.99% shareholder PT Ciputra Development Tbk to be moderate to strong, which should provide Ciputra Residence with a one-notch uplift. However, the uplift is not applied as Ciputra Residence's credit profile is commensurate with its rating. The uplift may be applied should Ciputra Residence's credit profile deteriorate. 'A' National Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment to a greater degree than is the case for financial commitments denoted by a higher rated category. KEY RATING DRIVERS Weaker-Than-Expected 2016 Presales: Ciputra Residence's presales fell 29% in 2016 due to weak demand as buyers withheld purchases ahead of the implementation of the Indonesian government's tax amnesty programme in the middle of 2016. Fitch had earlier expected a 25% rise in presales in 2016. The company also delayed plans for launches at its existing townships in November and December 2016 due to political unrest in the capital. The lower sales and additional debt to fund construction likely resulted in Ciputra Residence's presales/gross debt falling to 1.4x in 2016. Fitch expects the ratio to stay around 1.5x until 2019 before recovering to over 2x in 2020 as the company deleverages. Leverage Increases as Instalments Lengthen: The weak presales also led Ciputra Residence to allow property buyers to extend their instalment plans to a maximum of five years from four years previously. As such, the company has had to rely on additional debt to fund construction of its projects. We expect gross debt to grow by almost IDR500bn to reach IDR1.4trn at end-2016 and peak at IDR2.4trn in 2018. The company is likely to deleverage after 2019 as we expect property market conditions to improve. Narrower Margins; Lower-Cost Homes: Our rating case assumes lower margins going forward as the company plans to continue growing its portfolio of lower-priced houses. This strategy is underpinned by the growth in Indonesia's middle-income population, which comprises of first-home buyers who seek houses priced under IDR1bn. There is also lower competition in this market segment and fewer speculative buyers, who can cause volatility in demand. In our view, the narrower margins do not necessarily weaken Ciputra Residence's credit profile as EBITDA margins above 30% would still allow the company room for discounts during periods of weak demand. The company still managed to book a robust EBITDA margin of 40% in 9M16 due to revenue contributions from higher-margin projects, such as Citra Garden City and Citra Raya Tangerang. Pressures Easing, New Threat Looming: We are of the view that macroeconomic challenges are easing for the property sector in Indonesia. The conclusion of the tax amnesty programme should spur investment sentiment as fears of tax crackdowns decrease and as onshore liquidity improves with cash repatriation. Policies favourable for the property market, such as lower down payment requirements and benchmark rates, have also come into effect. However, new challenges have arisen spurred by the government's plan to reduce speculative purchases, which have driven an increase in land prices. The government is considering a plan to levy progressive taxes on "idle land". Other initiatives are also being considered by the government, but it is unclear whether these will be targeted at developers like Ciputra Residence or to individuals. More recently, the Minister of Agrarian and Spatial Planning said the taxes are aimed at clamping down on land price speculators rather than property developers that accumulate land as part of their business operations. Nonetheless, Fitch views this as a policy risk for developers. Linkage with Ciputra Development: Ciputra Residence's rating benefits from linkage with its 99.99% shareholder, Ciputra Development, which has a stronger credit profile. According to Fitch's Parent and Subsidiary Rating Methodology, there are strong operating and strategic linkages between Ciputra Residence and Ciputra Development. This linkage captures reputational risk from carrying the same brand name, significant degree of overlap in board composition and alignment of Ciputra Residence's expansionary strategy and financial policy with the overall group. DERIVATION SUMMARY In Fitch's view, Ciputra Residence's credit profile is inferior to higher-rated peers, such as PT Lippo Karawaci Tbk (A+(idn)/Stable) and PT Kawasan Industri Jababeka Tbk (A(idn)/Stable), which operate on a much larger scale in terms of presales, have superior leverage profiles and generate higher EBITDA from their recurring businesses relative to their interest expenses. However, Fitch believes Ciputra Residence is well-positioned relative to smaller-sized peers in the industry, such as PT Greenwood Sejahtera Tbk (BBB+(idn)/Stable). Ciputra Residence has significantly larger presales, and despite having higher leverage than Greenwood, also has a superior project pipeline, which allows for greater certainty of future cash-flow generation. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Revenue recognition: Houses - 20-25% in year 2, 50% in year 3 and the remainder in year 4; apartments - 25% a year over years 1-4 - 2017-2019 marketing sales at IDR2.6trn, IDR3.8trn and IDR4.3trn respectively - Investment properties to be operational by 2019, raising recurring revenue base to 6% of total revenue in 2019 and 8% in 2020 RATING SENSITIVITIES Future developments that could individually or collectively lead to positive rating actions include: - Greater project diversification and successful execution of investment properties, whilst maintaining a similar credit profile - Recurring EBITDA/interest above 0.5x (2016 Fitch forecast: 0.2x) Future developments that could individually or collectively lead to negative rating actions include: - Attributable pre-sales/gross debt falls below 1.0x on a sustained basis - Net debt/net inventory rises above 40% (Fitch forecast: 28%) on a sustained basis However, a one-notch uplift to Ciputra Residence's rating would be provided if its credit profile deteriorates, provided the rating linkages between the company and the parent remain intact. LIQUIDITY Liquidity Adequate, Repayment Comfortable: Ciputra Residence added IDR1.3trn of term loans in 2016 to fund construction across its projects, and for refinancing. It repaid its working capital facility, which had IDR400bn outstanding as of end-2015, and Phase 1 (IDR200bn) of the 2014 bonds is due for repayment in 2017. In December 2016, the company also obtained a USD30m facility from the International Finance Corporation. The new facilities have well-spread repayment profiles, with two of the term loans totalling IDR800bn having repayment schedules that start only when the facilities are fully drawn. FULL LIST OF RATING ACTIONS PT Ciputra Residence National Long-Term Rating affirmed at 'A-(idn)'; Outlook Stable Senior unsecured rating affirmed at 'A-(idn) IDR500bn bonds with partial credit guarantee from the International Finance Corporation affirmed at 'A(idn)' Contact: Primary Analyst Robin Sutanto Analyst +62 21 2988 6811 Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta 12940 Committee Chairperson Vicky Melbourne Senior Director +61 2 8256 0325 Summary of Financial Statement Adjustments - Fitch includes movements in advance payments from customers and land as well as advances made for land purchases under working capital changes. Fitch also adds amortised costs of debt back to total debt outstanding. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com. Applicable Criteria Country-Specific Treatment of Recovery Ratings (pub. 18 Oct 2016) here Criteria for Evaluating Third-Party Partial Credit Guarantees (pub. 11 Jul 2016) here Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016) here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 21 Nov 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here 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. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below