Indonesia’s property sector will continue to face headwinds next year amid the usual uncertainties associated with an election year, a declining rupiah and rising interest rates, global credit rating agency Moody’s Investors Service said.
In a report titled “Indonesian Property Developer Chartbook,” Moody’s rated eight of the country’s property developers, Bumi Serpong Damai, Lippo Karawaci, Sentul City, Intiland Development, Alam Sutra Realty, Agung Podomoro Land and Modernland Realty.
“The chartbook [report] provides updated snapshots of the developers’ business positions, marketing sales trends, revenue, profitability, cash flow, liquidity, leverage and interest coverage ratios, debt maturity profiles, foreign exchange exposure and covenant quality scores,” Jacintha Poh, vice president and senior analyst at Moody’s Investors Service, said in a statement on Tuesday (04/09).
Moody’s said further rupiah depreciation, along with rising interest rates, will hamper growth in the property sector.
Bank Indonesia has raised interest rates by 125 basis points since May this year and many observers expect further increases towards the end of the year.
The rupiah has depreciated by 11 percent against United States dollar so far this year and traded at 14,927 against the greenback on Wednesday, near its lowest point in 20 years.
Moody’s found that five of the eight property companies did not have sufficient cash as of June 30 this year to repay their short-term debt. These are Agung Podomoro, Modernland Realty, Intiland Development, Sentul City and Lippo Karawaci.
For example, Agung Podomoro Land had Rp 1.3 trillion ($87 million) in internal cash, while its short-term debt stood at Rp 5.9 trillion as of June 30. Intiland Development had Rp 976 billion, while its short-term debt stood at Rp 4.61 trillion.
But the global firm noted that some of these companies have replaced short-term debt with longer-term debt, which in the end could improve their cash coverage ratios.
Higher debt-funded capital expenditure and a surge in the cost of funding will further weaken some developers’ leverage and interest coverage ratios over the next 12 to 18 months, Moody’s said.
The ratings agency also highlighted that most of the developers will generate operating cash flow over the next 12-18 months, but only Pakuwon Jati, Bumi Serpong Damai and Intiland Development will be able to generate free cash flow – allowing them to expand, reduce debt or pay dividends to shareholders.
However, Moody ‘s still expects demand for property to recover next year. The increase in new property projects, sales promotions and lower property prices will boost demand and support an improvement in marketing sales.
Moody’s said in the report that the marketing sales of Bumi Serpong Damai, Alam Sutra Realty and Modernland Realty have exceeded 50 percent of their full-year target in the first half.