Indonesia Developers: Improved Sales Support Stabilizing Credit Quality - S&P Global
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Indonesia Developers: Improved Sales Simon Wong
Director, Corporate Ratings
Support Stabilizing Credit Quality Fiona Chen
Associate Director, Corporate Ratings
Christina Lim
November 2021 Rating Analyst, Corporate Ratings
This report does not constitute a rating actionKey Takeaways
Favorable regulatory polices supported strong sales recovery in 2021. In 2022, growth momentum will moderate
should policies taper off.
Credit metrics recovering but limited upside.
Indonesia vs Vietnam are in different stages of property cycle.
2Sales Momentum To Slow In 2H After Strong First Half 2021
– Supportive regulatory policies and developers’ promotional activities fueled the 72% rebound in 1H2021 sales.
– Another key driver was pent-up demand by end-users for affordable residential projects.
– VAT reduction helped drive inventory sales for some developers (e.g. Pakuwon).
– 2H sales to slow but full year sales will exceed 2019 (excluding land sales).
Sales Momentum High For All Key Indonesia Developers
72% year-on-year rebound in first half 2021
Modernland Jababeka Pakuwon Alam Sutera Lippo* Bumi Serpong Ciputra Summarecon Agung
30,000
-17%
25,000
20,000
Bil. IDR
15,000 72%
10,000
5,000
0
2019 2020 1H2020 1H2021
*Lippo’s contracted sales represent sales generated at the consolidated level. Bil.--Billion. IDR--Indonesian rupiah. Summarecon Agung - PT Summarecon Agung Tbk., Ciputra – PT Ciputra Development Tbk., Bumi Serpong
– PT Bumi Serpong Damai Tbk., Lippo – PT Lippo Karawaci Tbk., Alam Sutera – PT Alam Sutera Realty Tbk., Pakuwon – PT Pakuwon Jati Tbk., Jababeka – PT Kawasan Industri Jababeka Tbk., Modernland – PT Modernland
Realty Tbk. Source: S&P Global Ratings, Company’s report
3Favorable Mortgage Policies: Fueling End-User Property Demand
– Historical low mortgage interest rate and relaxed down payment support the uptick in home loan growth and affordability for end-users
Policy Rate And Home Loan Growth
Historically low policy rate supports mortgage-loan pricing
Housing & apartment loan* Policy rate Growth rate of home loan, YoY
(left scale) (right scale) (right scale)
600,000 15
500,000 12
Bil. IDR
400,000
9
%
300,000
6
200,000
100,000 3
0 0
2015 2016 2017 2018 2019 2020 1H2021
*Outstanding amount at the end of each period. Bil.--Billion. IDR--Indonesian rupiah. YoY--Year on Year. Source: Bank of Indonesia: Indonesia Financial Statistics, S&P Global Ratings.
4Sales Growth to Moderate As Policies Taper Off
– We estimate full-year sales will rebound 37.9% for below four developers in 2021, almost reaching pre-pandemic levels.
– This will slow to 6.5% in 2022 assuming favorable regulatory policies taper off.
– Driver of 2022 sales:
– End-user demand is supported by economic recovery and improving consumer sentiment.
– Increasing land sales will offset slower residential sales.
– Higher 2021 sales will benefit 2022 revenue when projects are completed and handed over.
Sales Growth To Moderate In 2022 As Favorable Policy Rolls Off Revenue Growth Largely Inline With Sales Trends
Alam Sutera Jababeka Lippo* Pakuwon Alam Sutera Jababeka Pakuwon
10,000 6.5% 12,000 10.1%
37.9% 10,000 29.7%
8,000
8,000
Bil. IDR
Bil. IDR
6,000
6,000
4,000
4,000
2,000 2,000
0 0
2020A 1H2021A 2021F 2022F 2020A 1H2021A 2021F 2022F
*Lippo's sales generated at the holding company level. Bil.--Billion. IDR--Indonesian rupiah. A--Actual. F- Bil.--Billion. IDR--Indonesian rupiah. A--Actual. F--Forecast. Source: Company's report, S&P Global
-Forecast. Source: Company's report, S&P Global Ratings. Ratings.
5Credit Metrics Recovering But Limited Upside
– Leverage and interest servicing profile will improve in 2022 on the back of higher revenue and EBITDA.
– However, leverage to remain high for most developers with thin EBITDA interest coverage.
Jababeka’s Credit Ratios Pakuwon’s Credit Ratios
Debt/EBITDA EBITDA interest coverage Upside trigger (EBITDA interest, right scale) Debt/EBITDA Upside trigger (Debt/EBITDA, left scale)
(left scale) (right scale) (left scale)
7.5 2.1 Downside trigger (Debt/EBITDA, left scale) EBITDA interest coverage
(right scale)
2.0
3.0 10
7.0 1.9
Times
Times
1.8 2.5
Times
Times
1.7 2.0
6.5 1.6 1.5
1.5 1.0 0
6.0 1.4 2020A 2021F 2022F
2020A 2021F 2022F
Alam Sutera’s Credit Ratios Lippo Holdco’s Cash Flow
Debt/EBITDA EBITDA interest coverage Operating cash flow excluding one off items* Operating cash flow post one off items*
(left scale) (right scale) 0
40 1.5
(500)
Bil. IDR
30 (1,000)
1.0
Times
Times
20 (1,500)
0.5 (2,000)
10
(2,500)
0 0.0 (3,000)
2020A 2021F 2022F 2020A 2021F 2022F
*One-off items represent stake sales and asset sales. A-- Actual. F--Forecast. Bil.--Billion. IDR--Indonesian rupiah. Sources: S&P Global Ratings.
6Free Operating Cash Flow To Remain Thin Despite Sales Recovery
– Higher contracted sales and faster mortgage loan disbursement will support 2021 operating cash flow.
– 2022 free operating cash flow unlikely to improve further with higher capital expenditure and assuming favorable loan disbursement will
not be extended.
Operating Cash Flows Have Mostly Strengthened While Free Operating Cash Flows Remain Thin
Developers' cash flow forecast
Operating cash flow Capital expenditure Free operating cash flow
3,000
2,000
1,000
Bil. IDR
0
(1,000)
(2,000)
(3,000)
2020A 2021F 2022F 2020A 2021F 2022F 2020A 2021F 2022F 2020A 2021F 2022F
Alam Sutera Jababeka Lippo* Pakuwon
*Lippo's cash flow generated at the holding company level excluding one off events. Operating cash flow includes cash interest paid. Bil.--Billion. IDR--Indonesian rupiah. A--Actual. F--Forecast Source: Company's report,
S&P Global Ratings.
7Liquidity - Mostly Manageable Over The Next 12 Months
– Cash balances provide some buffer for negative discretionary cash flow (DCF) over the next 12 months.
– Nevertheless, short-term debt maturities and loan amortization continue to pressure Alam Sutera’s liquidity profile.
Eased Liquidity Pressure Over The Next 12 Months
Cash balance as of June 2021 DCF over Jul 2021-June 2022 Short term debt maturities over July 2021-June 2022
7,000
6,000
5,000
4,000
Bil. IDR
3,000
2,000
1,000
0
(1,000)
(2,000)
Alam Sutera Jababeka* Lippo§ Pakuwon
*Jababeka's cash balance excludes joint ventures (JVs). §Reflects Lippo's holding company level cash balance and DCF. Bil.--Billion. IDR--Indonesian rupiah. Source: S&P Global Ratings, Company's disclosure.
8Limited Refinancing Risk Over Next 12-18 Months
– Limited refinancing needs reduce developers’ funding pressure.
– However, domestic funding environment remains challenging.
Next Maturity Wall Not Until 2023
Alam Sutera Modernland§ Jababeka Lippo* Pakuwon Bumi Serpong Ciputra† Agung podomoro
1,200
1,000
800 300
Mil. US$
600
300
420 111†
400 270
240§
200 417 400
300 251
150§ 24 171
0
2021 2022 2023 2024 2025 2026 afterward
*Reflect Lippo's holding company debt maturity profile. §Moderland's 2021 and 2024 notes are pending restructure completion. †Reflect Ciputra's 2026 Singapore Dollar 150 million notes. Mil.--Million. US$--United States
Dollar. Source: S&P Global Ratings. Company's disclosure
9Indonesia vs. Vietnam Property
Indonesia Vs Vietnam: Macro Indicators
Vietnam’s Property Growth Supported By Lower Urbanization And Indonesia Is Rebounding Faster In 2021, Vietnam Will Resume
Growing Middle Class In 2022
Real GDP Growth
GDP/Capita (left scale) Urbanisation (right scale) Indonesia Vietnam
4,500 60 8
4,000
50 6
3,500
3,000 40 4
2,500
US$
%
%
30 2
2,000
1,500 20 0
1,000
10 (2)
500
0 0 (4)
2010 2020 2010 2020 2018A 2019A 2020A 2021F 2022F
Indonesia Vietnam
US$--United States Dollar. Source: S&P Global Ratings, S&P CapIQ. A--Actual. F--Forecast Source: S&P Global Ratings.
11Indonesia Vs Vietnam: Property Sector
– Vietnam property sales grew faster than Indonesia alongside faster GDP growth over the past two years.
– Indonesia is recovering faster in 2021 supported by favorable policies, and end user demand of landed housing.
– Rated Indonesia players’ capital structure skewed toward offshore bond.
– While Vietnam players funding mainly through domestic bond, local and international bank loan
Funding Diversity
Contracted Sales Growth
Indonesia Developers Have Higher Reliance On Offshore Notes
Indonesia Vietnam USD notes USD bank loan
Other currency bank loan Local notes
Local bank loan and others
100 100%
75.8
80 67
80%
60 39
40 28 60%
%
20 40%
(2.8)
0 (11.9)
20%
(20) (37.2)
(19) 0%
(40)
Pakuwon
Novaland
Bumi Serpong
Modernland
Ciputra
Lippo*
Intiland
Vinhomes
Alam
Jababeka
podomoro
(60)
Agung
2018 2019 2020 1H2021
Indonesia's companies include Alam Sutera, Modernland, Jababeka, Lippo, Pakuwon, Bumi Serpong,
Ciputra, Summarecon, Intiland, Agung Podomoro. Vietnam's companies include Vinhomes, Nova Land. *Reflect Lippo's holding company level capital structure. Source: S&P Global Ratings, Company's
Source: S&P Global Ratings, Company's disclosure. disclosure.
12Key Credit Themes And Metrics For Indonesian Developers
PT Kawasan Industri Jababeka Tbk. (B-/Stable/--)
Key Rating Drivers Key S&P Assumptions
– COVID-19 reduced land sales visibility 2022 (IDR billion)
– Thin interest servicing capability and negative free operating cash flow Contracted & land sales* 1,400 to 1,500
(2021f: 1,200 to 1,300)
– Recurring EBITDA covers 60%-70% annual interest obligation
% of land sales 70%-75%
– Limited liquidity headroom at the consolidated (excluding joint ventures)
level
EBITDA margin 25%-28%
Key Monitoring Events Downside Scenario
– Pace of resumption in land sales to domestic and international buyers – Cash balance insufficient to cover annual interest costs
– Refinancing for 2023 bond – Liquidity sources decline materially below 1x of uses
* Contracted sales include that of Joint Ventures.
14PT Pakuwon Jati Tbk. (BB/Stable/--)
Key Rating Drivers Key S&P Assumptions
– No refinancing risks for the next five years 2022 (IDR billion)
– High recurring EBITDA-to-interest ratio of over 3x provides downside Contracted & land sales 1,550 to 1,650
resilience (2021f: 1,300 to 1,400)
– Established brand in Jakarta and Surabaya but limited scale constrains % of recurring income 60%-65%
rating
– Risks in geographical and sector concentration EBITDA margin 48%-50%
Key Monitoring Events Downside Scenario
– Limited debt-to-EBITDA headroom for 2021 due to US$100 mil retap in – Debt-to-EBITDA ratio consistently above 2.5x
May – Departs from its cautious financial policies, e.g., with a steep rise in
– Debt-to-EBITDA to recover to 2.1x-2.3x in 2022 on the back of 20%-25% capital spending or sizable land acquisitions
improvement in recurring revenue – Credit profile of Pakuwon’s parent company deteriorates due to rising debt
– Recovery of contracted sales
– Retail mall traffic footfall and potential rental waivers
– Potential acquisitions
15PT Lippo Karawaci Tbk. (B-/Stable/--)
Key Rating Drivers Key S&P Assumptions
– Improving cash flow sustainability toward 2022 Holdco level 2022 (IDR billion)
– Improving sales visibility in 2021 will benefit 2022 cash flow Contracted & land sales* 2,500 to 2,600
(2021: 2,700-2,800)
– Lower construction costs from 2022 as legacy high-rise are completed
Discretionary cash flow Negative 170 to
– Reduced rental support to First REIT and LMIRT
negative 220
– Increase in dividends backed by higher stake in LMIRT and
Cash on hand ~2,100 (end September 2021)
distribution from Siloam and Cikarang
– No major debt maturity before 2025
Key Monitoring Events Downside Scenario
– Progress of contracted sales and take-up of new launches in 2021 and – Unsustainable cash flow that requires continued asset sales to sustain
2022 cash balance
– Mortgage loan disbursement schedule in 2022 – Inadequate liquidity cushion to service more than a year of fixed interest
and rental charges
– Dividends amount from subsidiaries
– Cash on hand (Hold Co.) plus annual operating cash flow below IDR2
– Construction cost control
trillion
– Execution of further non-core asset sales
* Reflect Lippo's holding company contracted sales.
16PT Alam Sutera Realty Tbk. (NR)
Key Rating Drivers Key S&P Assumptions
– Unsustainable capital structure due to high debt amortization obligations 2022 (IDR billion)
and weak operating cash flow. Contracted & land sales 3,100 to 3,200
– Thin liquidity over the next 12 months. (2021f: 2,900 to 3,000)
% of land sales 10%-15%
EBITDA margin 30%-33%
Key Monitoring Events Downside Scenario
– Resolution of the outstanding US$22 million 2022 notes and hedging – Not applicable since rating has been withdrawn
benefits payout.
– Company’s cash balance – any signs of cash burn
– Additional funding secured
Rating withdrawn at ‘CCC+/Negative/--’ as of Oct. 12, 2021. IDR--Indonesian rupiah. Source: S&P Global Ratings.
17PT Modernland Realty Tbk. (D)
Terms offered in notes restructuring: Key Monitoring Events
– Extension of 2021 and 2024 bonds to 2025 and 2027 respectively. – Complete the administration and legal documents to make restructuring
effective
– Step-up coupon structure with option for payment-in-kind.
– Plans to raise US$200 million from asset sales before end-2024. 75%
from asset sales to be kept in escrow account for debt-repayment
purpose.
18Appendix – Indonesia Property Sector Indicators
Multi-Year Low Mortgage Rate To Stimulate Property Purchase Property Price Index Remains Stable In Key Cities
Mortgage rate Indonesia property price index (quarterly)
Semerang Surabaya Jakarta
9.0 400
8.92
350
8.9
8.85
300
Property price index
8.8
250
%
8.7 200
8.63
150
8.6
8.55
100
8.50
8.5
8.44 50
8.4 0
Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Q2 21
Q1--First quarter. Q2--Second quarter. Q3--Third quarter. Q4--Fourth quarter. Source: Bank of Indonesia: Q1--First quarter. Q2--Second quarter. Q3--Third quarter. Q4--Fourth quarter. Source: Bank of Indonesia:
Residential property survey. Residential property survey.
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