Dec 10, 2010

Fitch upgrades Pakuwon Jati to B-

Fitch Ratings has today upgraded PT Pakuwon Jati Tbk's (Pakuwon) Long-term foreign and local currency Issuer Default Ratings (IDRs) to B- from CCC and its National Long-term rating to BBB-(idn) from B(idn). The Outlook on these ratings is stable.
The agency has also upgraded the USD senior notes due 2011 to B-/RR4 from CCC/RR4. At the same time, the National Long-term rating on Pakuwon's senior unsecured rupiah bonds (outstanding IDR38.5 billion) due 2011 has been upgraded to BBB-(idn) from B(idn).
The upgrade reflects Pakuwon's completion of most of the Gandaria City project (Gandaria), reduced development risks associated with this project, and improvements in its cash generation and liquidity position.
As of October 2010, 89% and 51% of Gandaria's apartments and office blocks were presold respectively with installment-based cash flows expected through 2011.
Pakuwon intends to sell only 60% of the office block and has leased out 16% of the remainder as at end October 2010.
In the nine months ended September 2010, the company's revenue and cash flow from operations of IDR795 billion and IDR231 billion were significantly higher relative to IDR697 billion and IDR82 billion respectively in FY09.
Pakuwon's recurring revenues (currently around IDR400 billion per year) can improve meaningfully if the new mall in Gandaria City, which was opened in 2H-2010, can achieve and sustain high occupancy and robust rents.
Although Pakuwon's debt maturities spike in 2011 (to IDR362 billion), Fitch believes this is manageable given the unrestricted cash balances of IDR329 billion at end-October 2010, expected free cash generation and undrawn credit facilities of around IDR90 billion.
Outflow on capex has been reduced with much of the Gandaria project completed.
Pakuwon's leverage as measured by net adjusted debt to funds from operations (FFO) (excluding restricted cash) has improved to 1.6x as of September 2010 (from 2.3x at FYE09), and its FFO interest coverage has also improved to 6.4x from 2.2x in FY09.
The stable outlook reflects Fitch's expectation of Pakuwon maintaining a risk profile appropriate for its ratings in the short-to medium-term.
A negative rating action can be taken if Pakuwon's liquidity profile weakens unexpectedly and or due to any substantial new investments that would increase its risk profile.
Conversely, Fitch may consider a positive rating action - especially on Pakuwon's National Long-term rating - if the company can generate strong cash flows from its new mall and increase its sustainable recurring income.

Disclosure: No position at the stock mentioned above.  

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