RATING ACTION COMMENTARY

Fitch Upgrades Agung

Podomoro to 'CCC+' on
Re nancing
Fri 04 Oct, 2019 - 12:16 AM ET

Fitch Ratings - Singapore - 04 Oct 2019: Fitch Ratings has upgraded Indonesia-based
developer PT Agung Podomoro Land Tbk's (APLN) Long- Term Issuer Default Rating (IDR)
and the long-term rating on the company's USD300 million 5.95% notes due 2024 to 'CCC+'
from 'CCC-'. The Recovery Rating on the notes remains at 'RR4'. The notes are issued by
APLN's wholly owned subsidiary, APL Realty Holdings Pte. Ltd., and guaranteed by APLN and
several of its subsidiaries.

The upgrade follows the repayment of a IDR1.2 trillion syndicated loan, which was due on 30
September 2019, IDR750 billion in loans from PT Bank Maybank Indonesia Tbk, and domestic
bonds totalling IDR550 billion, which were originally due in December 2019 and March 2020.
APLN was able to repay the debt that was pressurising its liquidity after it received IDR800
billion in shareholder advances and bridge loans equivalent to around IDR1.8 trillion from a
private equity fund, SSG Capital Management (SSG).

KEY RATING DRIVERS

Negative Operating Cash Flows: Fitch estimates APLN's operating cash ows will remain
negative in the next 18-24 months. We expect APLN to fund the gap with additional
borrowings and this will continue to pressure its nancial pro le. The company's ability to
improve its cash ow is constrained by limited exibility in timing the construction costs of
its high-rise developments, which are typically committed, and the weakness in demand for
mid-to-high-end property, a segment in which APLN has most of its projects. Fitch does not
expect demand from the mid-to-high-end segment to recover signi cantly as investment
sentiment remains muted. Delays in the company's plan to sell its industrial land bank may
pose additional risks to APLN's presales targets and operating cash ows.

Manageable Remaining Maturities: APLN's scheduled debt maturities in the next 24 months
after the re nancing comprise term loans of about IDR500 billion due in 2020 and IDR790
billion in 2021. We believe the remaining maturities will be manageable, supported by the
individual project's cash ows, lower interest costs from a smaller debt, and committed
undrawn bank lines of IDR1 trillion as of end-September 2019.

Property Sale to Boost Liquidity: APLN said it is in advanced discussions with a potential
buyer of one of its mature investment properties and expects to nalise the transaction by
end-2019. Fitch has not factored the sale into the rating case due to the uncertainties over
the timing of the sale. However, we believe the sale, if completed, will materially improve
APLN's nancial pro le. The sale proceeds would provide APLN with more than suf cient
liquidity to fund the operating cash ow gap over the next 24 months, and reduce debt,
contributing to lower interest costs. The potential enhancement of APLN's liquidity would
also improve its nancing exibility and help the company re-establish access to the debt and
capital market.

Satisfactory Development Record: APLN's business risk pro le is supported by its long
experience in the Indonesian property market, and the company also has a solid record of
developing investment properties, including hotels. APLN opened Pullman Vimala Hills in
March 2019, and will add two new hotels in Bandung in the next 12-18 months. Fitch believes
the hotels' expansion risk is manageable as APLN has partnered with reputable hotel
operators, and tourism demand from both domestic and foreign visitors is healthy. APLN's
non-development assets do not provide suf cient coverage to its interest expenses (Fitch
2019 forecast: 0.7x) but we believe they provide the company with some nancing exibility,
if required.

Muted Presales, Improvement in 2H19: APLN reported around IDR1.3 trillion in

consolidated presales at end-August 2019, compared with our expectation of IDR2.6 trillion
for the full year. Fitch believes presales activities will pick up after the presidential election in
1H19, and APLN's advanced-stage projects, which are more attractive to end-buyers, should
help accelerate sales. Fitch also expects continued strong presales of around IDR900 billion
from APLN's township projects in Bandung, compared with IDR800 billion in 2018. This is
supported by the project's attractive location and landed properties, which are more
appealing to end-users.

Pluit City Project Remains Uncertain: Fitch has included in our forecasts management's plan
to refund part of customer advances of around IDR1 trillion for its Pluit City project in 2019-
2020 after delays over licensing issues. Our estimates on the refunds are conservative,
considering APLN had to refund only around IDR140 billion of Pluit City advances as cash in
the past few years up to April 2019. The company switched an additional IDR1.4 trillion of
presales from Pluit City to its other projects on the buyers' request. Fitch has also excluded
an inventory of IDR2 trillion on island G, the location of the Pluit City project, in computing
the company's leverage and Recovery Rating to re ect the challenges the company may face
in recovering costs in a worst-case scenario amid the continued uncertainty and delays in
restarting the project.

DERIVATION SUMMARY

APLN's rating can be compared with that of PT Lippo Karawaci TBK (B-/Stable). Fitch expects
both APLN and Lippo to continue generating negative operating cash ows in the next 12- 24
months due to weak demand for their properties, their high-rise property-development
business model, and high interest costs. However, Fitch believes APLN has a better project
execution record than Lippo, and therefore more likely to achieve its presales target.

However, Lippo has a more comfortable liquidity position than APLN, supported by the
completion of its USD787.5 million rights issue on 16 July 2019, which will address near-term
maturity and provide the company with more than suf cient liquidity to fund negative cash
ows at least till end-2020. APLN will have to rely on additional debt to fund its cash ow gap
in the next 24 months in the absence of major asset sales, and its re nancing risk will remain
high as the SSG loan matures in June 2021. This explains rating APLN one notch lower than
Lippo.

KEY ASSUMPTIONS

Fitch's Key Assumptions Within Our Rating Case for the Issuer

- Attributable presales of IDR1.9 trillion in 2019 and IDR2.9 trillion in 2020, driven by
recovering property demand after the April 2019 presidential election, and industrial land
sales starting 2020

- Attributable capex of IDR1 trillion in 2019 and IDR850 billion in 2020

KEY RECOVERY RATING ASSUMPTIONS

The recovery analysis assumes APLN would be liquidated in a bankruptcy rather than
continue as a going-concern because it is an asset-heavy company. The analysis is based on
interim accounts as of 30 June 2019.

- Fitch assumes 75% recovery from accounts receivable.

- 75% recovery from inventory including land for future development, purchase advances, net
of customer advances and net of islands G, I, F. Fitch assumes high inventory recovery
because land is recognised at historical acquisition cost, and the current market value is
considerably higher.
- 60% recovery from investment property and xed assets

- Fitch has added committed undrawn construction facilities totaling IDR1 trillion as part of
secured debt and inventory, and the net of accounts payable and cash as part of secured debt

- These assumptions result in a recovery rate for senior unsecured notes within the 'RR1'
range. However, because Indonesia falls into Group D of creditor-friendliness under our
Country-Speci c Treatment of Recovery Ratings Criteria, the recovery rate is subject to a soft
cap of 'RR4', which maps to a senior unsecured rating of 'CCC+' in line with our Corporates
Notching and Recovery Ratings Criteria.

RATING SENSITIVITIES

Developments that May, Individually or Collectively, Lead to Positive Rating Action:

- Sustained improvement in operating cash ows such that negative free cash ow to debt
falls below 20% (2019F: -27%)

Developments that May, Individually or Collectively, Lead to Negative Rating Action:

- Inability to execute asset sale to address upcoming debt maturities in 2021

- Further weakening in operating cash ows such that the company is unable to meet its debt
obligations in the next six to 12 months

LIQUIDITY AND DEBT STRUCTURE

Manageable Maturities, Negative Cash Flow: APLN's remaining debt maturities are
manageable, and the company does not have any signi cant maturities until June 2021 when
the loan from SSG is due. Fitch believes APLN has suf cient liquidity for 12 months to fund its
negative cash ows by using its committed undrawn construction loans of around IDR1
trillion as of end-September 2019. Fitch also believes APLN's pool of investment-property
assets will continue providing nancial exibility, if required.

ESG CONSIDERATIONS

APLN's weak nancial discipline and operational execution led to the delays in securing the
requisite funds for re nancing near-term maturities, in Fitch's view. However, the completed
re nancing and greater clarity over the company's plan to improve its capital structure,
together with its shareholders' demonstrated willingness to provide nancial support, have
led us to reassess the company's management strategy and lowered the score for the highest
level of credit relevance from governance for APLN's rating under Fitch's Environmental,
Social, and Governance (ESG) framework to '4' from '5'. A governance score of 4 has a
negative impact on the credit pro le, and is relevant to the ratings in conjunction with other
factors.

RATING ACTIONS

ENTITY/DEBT RATING RECOVERY PRIO

APL Realty    
Holdings Pte.
Ltd.

• senior LT CCC+  Upgrade RR4 CCC-

unsecured

PT Agung LT CCC+  Upgrade CCC-

Podomoro IDR
Land Tbk

VIEW ADDITIONAL RATING DETAILS

FITCH RATINGS ANALYSTS

Erlin Salim
Director
Primary Rating Analyst
+65 6796 7259
Fitch Ratings Singapore Pte Ltd. One Raf es Quay #22-11, South Tower Singapore 048583

Hasira De Silva, CFA

Senior Director
Secondary Rating Analyst
+65 6796 7240

Vicky Melbourne
Senior Director
Committee Chairperson
+61 2 8256 0325

MEDIA CONTACTS

Leslie Tan
Singapore
+65 6796 7234
leslie.tan@the tchgroup.com

Peter Ho ich
Singapore
+65 6796 7229
peter.ho ich@the tchgroup.com

Additional information is available on www. tchratings.com

APPLICABLE CRITERIA

Corporates Notching and Recovery Ratings Criteria - Effective from 23 March 2018 to 14
October 2019 (pub. 23 Mar 2018)
Sector Navigators - Effective from March 2018 to March 2020 (pub. 23 Mar 2018)
Country-Speci c Treatment of Recovery Ratings Criteria - Effective from 18 January 2019 to
27 February 2020 (pub. 18 Jan 2019)
Corporate Rating Criteria - Effective from 19 February 2019 to 27 March 2020 (pub. 19 Feb
2019)
Parent and Subsidiary Rating Linkage (pub. 27 Sep 2019)

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ENDORSEMENT STATUS

APL Realty Holdings Pte. Ltd. EU Endorsed

PT Agung Podomoro Land Tbk EU Endorsed

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Real Estate and Homebuilding Corporate Finance Asia-Paci c Singapore Indonesia