Jun 20, 2011

Moody's upgrades Pakuwon Jati to B3

Moody's Investors Service has today upgraded PT Pakuwon Jati Tbk's corporate family rating and senior secured bond rating to B3 from Caa1.
The outlook for the ratings is positive. "The upgrade reflects the company's improved credit metrics and increased  levels of recurring income, both because of strong leasing performance and pre-sales for the properties at its Gandaria City project," said Alvin Tan, a Moody's analyst, in a press statement today.
As of March 31, 2011, approximately 93% of the retail mall at Gandaria City had been leased, 92% of its two condominium towers sold, and 77% of the offices either sold or leased. The high occupancy rates and long leases for the retail mall -- with 89% locked in for five-to10-year periods -- will improve Pakuwon's recurring income stream at least over the medium term.
"As a result of the strong presales at the Gandaria City and Pakuwon City projects, coupled with the improved recurring income from Gandaria City, Pakuwon's debt/capitalization improved to 45% in FY2010 from 50% in the previous year, and EBITDA/Interest coverage rose to 4.5x," said Tan.
"Moody's expects income from the property development segment over the next 1-2 years to be driven by presales from the Tanjungan V project, Pakuwon City project, and sales of the remaining Gandaria City units. 
Moody's also expects the company to maintain debt/capitalization at below 50% and EBITDA/Interest coverage between 3x and 5x over the next 2-3 years, still strong for its B3 rating.
Pakuwon had cash and cash equivalents of around Rp382 billion as of end-March 2011, which is more than its maturing debt of Rp270 billion over the next four quarters. 
The maturing debt includes Rp142 billion from the unexchanged senior secured notes due in November 2011. The positive outlook reflects Moody's expectation that Pakuwon will be well-supported by the improved recurring income from its investment properties, as well as ongoing financial discipline in its pursuit of its growth strategy.
Further track record of prudent investment and strategy decisions over the coming 12-18 months could see Pakuwon's ratings upgraded further to B2. 
An upgrade would also be supported by sustained improvements in sales performance and cash flow generation and further strengthening of recurring income. 
Credit metrics that will support an upgrade include EBITDA/interest coverage above 3.0x and adjusted leverage below 45-50% on a sustained basis.
On the other hand, the rating could return to stable if Pakuwon's financial and liquidity profiles weaken due to 1) the company taking on large debt-funded projects, which lead to excessive development risk; 2) the property market deteriorates, leading to protracted weakness in its operations and credit profile; and 3) the company fails to meet its financial covenants test, resulting in accelerated debt payments.
Disclosure: No position at the stock mentioned above.  

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