Fitch Ratings has downgraded
Fitch has also downgraded the rating on the
The downgrade follows confirmation that the company did not pay a coupon due
KEY RATING DRIVERS
Missed Coupon; Grace Period: The company's 30-day grace period after missing the August coupon on the 2021 bond will allow it to satisfy the payment obligation before non-payment constitutes an event of default. Fitch estimates the company does not have sufficient cash to service its debt and would be reliant on external funding to meet the coupon payment. Non-payment after the grace period will constitute an event of default and Fitch may downgrade MDLN's IDR and the rating on the bonds to 'Restricted Default' (RD).
Severe Liquidity Crunch: MDLN's liquidity position remains under severe pressure, which led to the restructuring of a
ESG - Governance: MDLN has ESG Relevance Scores of 5 for Management Strategy and Financial Transparency. This follows our assessment that financial management with respect to refinancing and disclosure of pertinent information has deteriorated. This is evident from the challenges the company is facing in meeting its debt obligations, and the company is unable to provide timely information on its liquidity position, cash balance and concrete refinancing plan. In addition, management has not been able to implement a strategy to secure funding or improve cashflows and therefore pay the USD dollar bond coupon.
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DERIVATION SUMMARY
MDLN's downgrade to 'C' reflects the non-payment of the US dollar 2021 note coupon due
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Limited access to new funding
No pre-sales in both industrial and residential segments in 2Q20, with pre-sales to gradually resume in 3Q20 and 4Q20
Zero collections in 2Q20 and 3Q20 from industrial properties sold in the past
Around 25% of MDLN's residential pre-sales are paid in cash or instalments to the developer. We have assumed zero collections on these in 2Q20 and 3Q20
Collections from new residential pre-sales to resume in 3Q20
No significant reduction in operating expenditure except for marketing expenses, in line with lower pre-sales
Key Recovery Rating Assumptions
The recovery analysis assumes MDLN would be liquidated in a bankruptcy rather than be considered a going-concern. Fitch has also assumed a 10% administrative claim in the recovery analysis.
The estimate reflects Fitch's assessment of a 50% advance rate on the value of trade receivables under a liquidation scenario, inventory, fixed assets, investments in associates and land bank for long-term development. We adjusted the advance rate assumptions for trade receivables, investments in associates and land bank for long-term developments to 50% from a previous 75%, 100% and 100%, respectively. The adjustments reflect our view that the company's financial distress may have influenced buyers' confidence over the company's projects, impairing the recovery prospects of these assets.
We have also deducted from trade receivables the amount due from
These estimates result in a recovery rate corresponding to an 'RR2' Recovery Rating for MDLN's senior unsecured notes. Nevertheless, Fitch rates the senior notes 'C' and maintained the Recovery Rating of 'RR4' because under the agency's Country-Specific Treatment of Recovery Ratings Criteria,
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
If MDLN pays the missed coupon within the cure period
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The IDR will be downgraded to 'RD' if the payment default is uncured.
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
Insufficient Liquidity: MDLN missed the
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
MDLN has ESG Relevance Scores of 5 for Management Strategy and Financial Transparency based on our assessment that the management of refinancing risks and the disclosure of pertinent information has deteriorated.
Except for the matters discussed above, the highest level of ESG credit relevance, if present, is a score of 3 - 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.
RATING ACTIONS
ENTITY/DEBT RATING RECOVERY PRIOR
PT Modernland Realty Tbk LTIDR C Downgrade C C
senior unsecured
LTC Downgrade RR4 C C
senior unsecured
LTC Downgrade RR4 C C
senior unsecured
LTC Downgrade RR4 C C
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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