Jakarta. Moody's Investors Service, a global credit rating agency, has lowered the corporate family rating of Modernland Realty, one of Indonesia's largest listed property company amid concerns the company may default on its bonds.
Moody's now rated Modernland's junk bond at Ca, or one level above the lowest rating, down three levels from its previous rating of Ca1.
"The downgrade of Modernland's ratings reflects our expectation of a high likelihood of imminent default, including a potential debt restructuring, because of a deterioration in the company's operating cash flow generation and liquidity," says Jacintha Poh, a Moody's vice president and senior credit officer, said in a statement on Tuesday.
"The negative outlook reflects uncertainty around the recovery rate for the company's combined $390 million of notes in case of default," said Poh.
Modernland delayed paying the principal of its Rp 150 billion ($10.4 million) due Tuesday and called the bondholders to a meeting next Tuesday to discuss the new repayment date.
Besides, the company still had to pay interest of Rp 250 billion semi-annually on its US dollar bonds, Moody's said. The company owed $150 million on 10.75 percent interest due August 2021 and $240 million on 6.95 percent due April 2024.
And the rating agency Modernland simply did not have enough cash to fulfill its obligations. The company booked Rp 188 billion cash outflow in the first quarter, and its cash and cash equivalents dropped to Rp 180 billion at the end of March, from Rp 554 billion at the end of last year.
"Unless Modernland is able to secure external funding, the company will not have sufficient funds to repay its Rp 150 billion bonds due 7 July 2020 and meet interest payments of around Rp 250 billion semi-annually on its US dollar bonds," Moody's said in its statement.
"A missed payment on either obligation, not remediated within its respective cure period, will lead to an event of default under the indentures of its US dollar bonds," the rating agency said.
Danu Pate, Modernland's investor relations general manager, said the company could not provide any immediate comment on the company's bond potential default.
"At the moment, we cannot comment yet. Thank you again for your attention and understanding," Danu said.
Moody's said an upgrade of Modernland's ratings was "currently unlikely, and would be conditional upon the company establishing a sustainable capital structure
and restoring its liquidity."