Fitch Ratings has downgraded
At the same time, Fitch has downgraded the senior unsecured
The bonds are issued by wholly owned subsidiary,
The downgrade reflects Fitch's view that the proposed exchange constitutes a distressed debt exchange (DDE), because it results in a material reduction in terms to investors, and we believe the transaction is conducted to avoid a default on the
If the DDE is completed, Fitch will downgrade KIJA's IDR to 'Restricted Default' (RD), and re-assess the ratings in line with the post-exchange capital structure. If the exchange is unsuccessful, KIJA's ratings will be reassessed to reflect the heightened near-term liquidity risks.
'C' National Ratings denote a default or default-like process has begun, or the issuer is in standstill, or for a closed funding vehicle, payment capacity is irrevocably impaired.
Key Rating Drivers
Exchange Offer Constitutes a DDE: The transaction contemplates exchanging the face value of at least 90% of KIJA's outstanding bonds due
Exchange to Avoid Default: We believe KIJA's ability to raise new financing has weakened significantly amid souring investor sentiment for emerging-market debt, as global growth prospects slow due to persistently high inflation and rising interest rates.
The refinancing plans had previously included raising
Presales to Moderate: We forecast presales, excluding KIJA's joint venture - PT Kawasan Industri Kendal - to fall by 5% in 2023 to around
We expect industrial land sales to account for the majority of presales in the next two years, with affordable homes and commercial land plots making up the balance.
ESG - Governance: The company has not fully addressed market concerns on debt maturities amid limited access to capital, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors
Derivation Summary
KIJA's Long-Term IDR of 'C', the 'C' rating on its unsecured notes and the National Long-term Rating of 'C(idn)' reflect the company's announced exchange offer on its outstanding unsecured notes, which Fitch believes constitutes a DDE.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Presales, excluding the Kendal joint venture, to fall to around
Non-development EBITDA of around
Land banking and capex, excluding Kendal, of around
We do not assume any dividends in 2022 and 2023, considering Kendal's ongoing development plans.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch will reassess KIJA's capital structure and cash flow after the completion of the exchange offer, or if the exchange is not completed, to determine its IDR, senior unsecured ratings and National Long-Term Rating.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch will downgrade KIJA's Long-Term IDR to 'RD' (Restricted Default) and National Long-Term Rating to 'RD(idn)' if the exchange offer is completed, and thereafter re-assess the company's IDR based on its post-exchange capital structure.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Bank Funding Insufficient: KIJA had around
Issuer Profile
KIJA is an
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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