Pacific emerald pte 2018
PACIFIC EMERALD PTE 2018 9.75%
XS0955613228
senior unsecured
S&P B+
Fitch B+
size $100.000
25/07/2016 call 104.875
25/07/2017 call 102.438
oggi si compra a 98.50
Overview
Multipolar's consolidated cash flow adequacy ratios will likely remain compressed and its profit margin thin over the next two years, in our view. Debt repayment also depends on dividend income from operating subsidiaries and investments and is subordinated to lease payments.
The company's good market position in the Indonesian hypermarket sector, positive industry prospects, and stable margins partly offset these weaknesses.
We are assigning our 'B+' long-term corporate credit rating and our 'axBB' ASEAN regional scale rating to Multipolar. We are also assigning our 'B+' rating to up to US$200 million in proposed unsecured notes that the company guarantees.
The stable outlook reflects our expectation that Multipolar will maintain its market share and that the holding company's ability to service interest remains robust in 2013 and 2014 because of exceptional dividends from operating companies.
Rating Action
On July 12, 2013, Standard & Poor's Ratings Services assigned its 'B+' long-term corporate credit rating to PT Multipolar Tbk., an Indonesia-based diversified retailer. The outlook is stable. At the same time, we assigned our 'axBB' long-term ASEAN regional scale rating to the company. We also assigned our 'B+' long-term rating to a proposed issue of up to US$200 million in unsecured notes that Multipolar guarantees. Pacific Emerald Pte. Ltd., a special-purpose vehicle that Multipolar fully owns, will issue the notes.
Rationale
The rating on Multipolar reflects the company's thin consolidated cash flow adequacy ratios and profitability. It also reflects Multipolar's reliance on dividends from its operating companies to service its debt. Multipolar's good domestic market share in the hypermarket sector in Indonesia, stable margins, and positive growth prospects for the country's retail sector partly offset these weaknesses. The company's business risk profile is "weak" and its financial risk profile is "aggressive," as defined in our criteria.We forecast Multipolar's consolidated cash flow adequacy ratios to remain thin over the next two years. We project the ratio of funds from operations (FFO) to debt to be 2%-7% and the ratio of debt to EBITDA to be 5.5x-7.5x. We adjust key consolidated debt and income items by adding non-cancellable operating leases as per our criteria. Operating lease adjustments account for about 65% of adjusted debt in our computations. We expect Multipolar's consolidated financial debt to peak at about Indonesian rupiah (IDR) 2.5 trillion over the next two years. Nevertheless, this debt amount does not include a contingent liability at Multipolar's 50.2%-owned hypermarket operator PT Matahari Putra Prima Tbk. (MPPA), agreed during the February 2013 transaction between Multipolar and Singapore-based investment holding Temasek Holdings (Private) Limited. That contingent liability, if triggered, could lead MPPA to fund a large dividend payment with debt beyond 2016 and to a higher consolidated leverage for Multipolar. MPPA's debt is subject to a maximum of 3.0x its EBITDA and Multipolar's maximum debt limited at 3.5x of consolidated EBITDA, according to the terms of the proposed notes. Multipolar's good competitive position in Indonesia's retail sector supports its business risk profile. It owns the majority of MPPA and 20.5% in department store operator PT Matahari Department Stores Tbk. (MDS). We forecast MPPA's share of the domestic hypermarket segment to remain at 30%-35% over the next two years as we expect the company to open 16-18 new hypermarkets annually in our base-case scenario. MDS' strong 33% market share is sustainable, in our view, given the department stores' good franchise, wide network, and first-mover advantage; in addition, competition in that segment is more fragmented.We project Multipolar's consolidated EBITDA margin, after lease and overhead expenses, to be thin at 3.3%-4.0% in 2013 and 2014, given the typically low margins of food retailing operations. We see little upside to the 3.5%-4.5% EBITDA margin we expect for MPPA over the period, given rising labor costs, a growing proportion of new stores with higher start-up costs, and intense competition. We expect the profitability of Chinese retail operations to gradually improve and break even on an EBITDA basis in 2016. Nevertheless, Chinese operations will remain a strain on Multipolar's consolidated EBITDA margin. Multipolar's ability to repay debt depends on dividends from its operating subsidiaries and investments. We forecast total dividends from operating subsidiaries and investments to cover the holding company's debt by a strong 4.0x-4.5x in 2013 and 2014. But we note that about 80% of total dividends that Multipolar will receive in 2013 and 70% in 2014 will originate from exceptional dividends paid by MPPA, following asset disposals that have already occurred. We expect interest coverage at the holding company level to decline to about 2.0x in 2015. In addition, Multipolar does not control the dividend policy of MDS, which could contribute about one-third of total recurring dividends by 2015.The issue rating on the proposed senior notes reflects the 'B+' long-term corporate credit rating on Multipolar. The issue rating is subject to our review of the final issuance documentation, and confirmation of the amount and terms of the notes. We do not notch down the issue rating from the corporate credit rating in Indonesia given the untested nature of Indonesia's bankruptcy regime.Multipolar is a holding company that owns majority stakes in retail, technology, media, and real estate investment companies in Indonesia and China. In 2013, retail will likely contribute more than 75% of Multipolar's consolidated EBITDA.
Liquidity
We view Multipolar liquidity as "adequate," as defined in our criteria. The company's consolidated sources of liquidity, including cash and facility availability, will exceed its needs by about 1.5x over the next 12 months. Our liquidity assessment incorporates the following expectations and assumptions:The company's proposed notes issue of up to US$200 million will proceed.
Liquidity sources include consolidated cash balance and short-term investments, excluding loans and receivables, of IDR3,715 billion as of Dec. 31, 2012, and FFO that we expect to be IDR240 billion-IDR270 billion in 2013.
Liquidity sources also include about IDR2,100 billion in net inflows from asset and warrant sales, and the placement of six months of interest from the proposed notes as restricted cash.
Liquidity needs include about IDR2,664 billion of debt; we expect Multipolar to refinance most of that debt after the issuance of the proposed notes.
Liquidity needs also include capital spending that we expect to be about IDR1,400 billion, working capital requirements that we expect at about IDR450 billion, and dividends of about IDR275 billion.
We also assess liquidity at the holding company level as "adequate." The holding company had about IDR1,567 million in cash and equivalents as of March 31, 2013, with inflows from sales of warrants of IDR438 billion in April 2013 and about IDR502 billion of dividends received from MPPA in May 2013. This compares with short-term debt of about IDR1,741 billion. We believe Multipolar's 20.5% stake in MDS, which is listed on the Indonesia stock exchange, provides an additional source of liquidity. Covenants of the proposed note issue allow good discretion on the use of proceeds from the sale of up to 7.4% in MDS.
Outlook
The stable outlook reflects our expectation that Multipolar will maintain its market share in the Indonesian retail sector. We also expect the receipt of exceptional dividends from MPPA in 2013 and 2014. The stable outlook also accommodates a substantial decline in the coverage of holding company interest expense beyond 2014.We may lower the rating on Multipolar if we lower the rating on MPPA, given the large contribution of the company to Multipolar's consolidated financial performance. We may also lower the rating if the coverage of interest payments at the holding company level by dividends from its operating companies declines below 1.5x for more than 12 months. This may materialize if capital spending at the operating companies is substantially higher than we anticipate or if their revenue growth, margins or dividends are lower than our forecasts. We may also lower the rating if Multipolar's consolidated ratio of FFO to interest expense, including lease adjustments, declines below 1.5x because of higher debt at the operating companies, shareholder-friendly initiatives, or weaker financial performance.We may raise the rating on Multipolar if we raise the rating on MPPA. An upgrade of Multipolar would nevertheless be contingent upon MDS' financial performance and its Chinese operations being supportive of the consolidated financial profile of the group.New Rating PT Multipolar Tbk. Corporate Credit Rating B+/Stable/-- ASEAN Regional Scale axBB/--/-- Pacific Emerald Pte. Ltd. Senior Unsecured B+ Complete ratings information is available to subscribers of RatingsDirect at
www.globalcreditportal.com and at
www.spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left column.
