Fitch Ratings has removed the ratings of Indonesia-based property developer PT Alam Sutera Realty Tbk (ASRI) from Rating Watch Negative (RWN) and simultaneously affirmed the company's Long-Term Issuer Default Rating (IDR) at 'B' with a Stable Outlook. The agency has also affirmed ASRI's senior unsecured rating and the ratings on all its outstanding senior unsecured notes at 'B' with a Recovery Rating of 'RR4'.
A full list of rating actions is at the end of this commentary. The affirmation of the ratings follows the company's announcement on 2 November 2017 that it has received the requisite consent from the holders of its outstanding US dollar senior unsecured notes to waive the breach of the restricted payment covenant in the bond indentures. The company is due to pay the consent fee on or around 6 November 2017. The notes are issued by ASRI's 100%-owned subsidiary Alam Synergy Pte Ltd and guaranteed by ASRI. ASRI's 'B' ratings reflect its large low-cost land bank of more than 19 million square metres (sq m), healthy profit margins, moderate leverage and comfortable liquidity, and factor in our expectations that its annual property pre-sales will remain subdued at less than IDR3.5 trillion in the medium term.
Pre-Sales Continue to Lag: ASRI's 4Q17 transactions could help the company meet its pre-sales target by year-end, although 9M17 pre-sale underperformance underlines the non-negligible sales execution risk associated with current operations. One major issue is the lack of sales progress from its prime office project, The Tower, which represented 40% of the original 2017 contracted sales target. Positively, we expect most of ASRI's deliveries to its Chinese development partner, China Fortune Land Development (CFLD), to be fulfilled during 2017, despite a delay on titles for a small number of parcels. Land Sales Increase Concentration: ASRI's liquidity has benefited from its partnership with CFLD in its second township project in Pasar Kemis, under which CFLD buys raw, zoned land from ASRI's deep local land bank in the area. This offtake does, however, significantly increase concentration around one buyer for a large portion of ASRI's cash flow. (end)
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