Fitch Ratings has upgraded
The Outlook is Stable. Fitch has also upgraded the senior unsecured rating on CTRA's
The 'BB-' Long Term IDR and Stable Outlook reflects our view that CTRA will maintain its annual attributable contracted sales, excluding minorities' share, above
The rating is also supported by CTRA's exceptionally strong balance sheet, which provides the company with significant financial flexibility.
Key Rating Drivers
Steady Contracted Sales: Fitch forecasts CTRA to achieve attributable annual contracted sales of around
We think CTRA's exceptionally low leverage (net debt/net property assets) in the low single digits, positions it well to mitigate a slowdown in mortgage-funded contracted sales if domestic banks' appetites wane in the near term. The company can offer customers in-house instalment schemes instead to finance home sales, which will raise leverage somewhat but should allow CTRA to remain well within the sensitivities for its 'BB-' rating.
VAT Rebate Expiry Neutral: We think CTRA's contracted sales will be resilient after the expiry of the Indonesian government's VAT rebate on home sales in
Diversified Sales Mix: We believe that CTRA's geographic and product diversification increase the stability of its contracted sales. Geographic diversification benefited contracted sales in 2022, with declining contracted sales in
Leverage Remains Low: Fitch forecasts CTRA's leverage to rise but remain below 10% in 2023 (
Negative Free Cash Flow: We expect CTRA will generate negative free cash flow (FCF) in 2023 and 2024. This is based on Fitch's estimates of a moderation in contracted sales, higher capex and slower cash collections, assuming that some customers switch from mortgage funding to cash instalments.
Increasing Non-Development Revenue: Fitch forecasts non-development revenue will increase to 21% of total revenue in 2024 from 17% in 2021. We forecast shopping mall and hotel revenue will continue to improve in 2023. Shopping mall revenue rose by 38% yoy to
Derivation Summary
CTRA's rating compares well with that of
PWON is one of
CTRA and BSD are rated at the same level. We forecast CTRA's attributable contracted sales of between
CTRA is rated two notches higher than BIM Land which reflects CTRA's exposure to residential development cash flow and its greater diversification. Around 30%-40% of BIM Land's sales are derived from tourism-led properties, such a condotels and rental villas, where the demand is more cyclical than residential units. In addition, BIM Land's geographic diversification is weaker with contracted sales mostly concentrated in northern
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Attributable contracted sales (excluding minority interests' share) of
Attributable land acquisition spending of around
Capex of around
Dividends increasing to between
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
We do not expect positive rating action in the next 24 months, as CTRA's attributable contracted sales should remain steady. Over the longer term, a significant and sustained increase in attributable contracted sales while maintaining a conservative financial profile could lead to a rating upgrade.
Factors that could, individually, or collectively, lead to negative rating action/downgrade:
Annual attributable contracted sales sustained below
Net debt/net property assets above 40% for a sustained period.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Strong Liquidity, Diversified Funding: CTRA reported
CTRA has good access to its domestic bank market and its funding sources are well diversified. Only 17% of its outstanding debt is foreign currency denominated, consisting of its
Issuer Profile
CTRA is a leading Indonesian homebuilder with a land bank of over 2,200 hectares well-spread across several areas in the country. It is also one of the most diversified Indonesian homebuilders with over 80 projects in 34 cities, and contracted sales spread across low, mid and upper-income customer segments.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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