PEFINDO affirms “idA-” ratings for PT Adhi Karya (Persero) Tbk and its bonds, outlook remains negative

(August 18, 2020)--PEFINDO has affirmed its “idA-” ratings for PT Adhi Karya (Persero) Tbk (ADHI), its Shelf Registered Bond II Year 2017, and Shelf Registered Bond II Year 2019. The outlook for the corporate rating is maintained at “negative” to anticipate deterioration in ADHI’s credit profile due to higher debt to finance its investments in infrastructure projects as well as growing prefunding for working capital owing due to the shifting trends from government and state-owned enterprise projects using turnkey scheme payment and payment delay from construction projects. The payment delay was caused by the coronavirus disease 2019 (COVID-19) outbreak, resulting delays in construction work and administration processes for progress payments due to physical distancing policy to anticipates the spread of COVID-19. Consequently, it also affecting ADHI’s revenue and property sales targets, thus weakening its overall credit performance.

An obligor rated idA has a strong capacity to meet its long-term financial commitments relative to that of other Indonesian obligors.

However, the obligor is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher-rated obligors. The Minus (-) sign indicates that the rating is relatively weak within the respective rating category.

The corporate rating reflects ADHI’s strong presence in the domestic construction market, the advantages of being a state-owned construction company, and strong company synergy. The rating is constrained by its aggressive financial leverage and weak cash flow protection measures, risks related to new businesses, and a relatively volatile business sector.

The rating could be lowered if ADHI’s incurs more debt than projected, stemming from delayed projects payment, resulting financial leverage becomes more aggressive, and its interest coverage ratio weakens, as reflected by substantially higher debt to EBITDA ratio on sustained basis. The outlook could be revised to stable if it improves its financial profile to a level commensurate with an idA- rating on sustained basis.

ADHI is one of the largest construction companies in Indonesia, established in 1960. Its business is divided into four major categories: construction services; engineering, procurement and construction (EPC); property and realty; and investment infrastructure. As of March 31, 2020, its shareholders were the Indonesian government (51.0%) and the public (49.0%). (ends)