OREANDA-NEWS. S&P Global Ratings today lowered its long-term corporate credit rating on PT MNC Investama Tbk. to 'B-' from 'B'. We also lowered our long-term ASEAN regional scale rating on the company to 'axB-' from 'axB+'. The outlook is negative.

In addition, we lowered our long-term issue rating on the senior secured notes guaranteed by MNC Investama to 'B-' from 'B'. Ottawa Holdings Pte. Ltd. issued the notes.

MNC Investama is an Indonesia-based holding company with sizable media interests and growing operations in financial services.

"The downgrade reflects MNC Investama's increasingly unfavorable debt maturity profile and delays in articulating a comprehensive refinancing strategy for the company's maturing debts, especially its U. S. dollar-denominated senior secured notes," said S&P Global Ratings analyst Xavier Jean.

MNC Investama and its main operating companies are facing debt repayments of nearly US$900 million in bank loans and bonds through 2018. These include a bank loan of US$243 million at PT MNC Sky Vision Tbk. at the end of 2016, a bank loan of US$250 million at PT Media Nusantara Citra Tbk. (PT MNC Tbk.) in September 2017, culminating with a US$365 million senior secured bond in May 2018 at PT MNC Investama Tbk., the holding company.

MNC Investama and group companies will face varying degrees of refinancing risks for these three lumpy maturities, given the still-high capital spending and lack of cash build-up through 2017.

"In our opinion, refinancing risk is more acute for MNC Investama's senior secured notes than for its operating companies," Mr. Jean said. "MNC Investama has limited operating activities or assets on its own that it can use as a source of repayment for the notes. It relies on dividends it receives from its operating subsidiaries, most notably PT MNC Tbk., to service interest on the notes."

The upcoming bond maturity at MNC Investama coincides with a soft performance at operating subsidiaries.

Cash accumulation at MNC Investama and at the main operating companies is likely to remain limited over the next 18 months, given still-elevated investment in growing the business, interest servicing requirements and high shareholder distributions.

MNC Investama has divested part of its direct stake in MNC Sky Vision since the beginning of 2016 to boost liquidity and support interest coverage at the holding company. We believe it has the option to divest it further if necessary. The value of its 5.93% stake is about IDR450 billion currently.

MNC Investama also controls the dividend payout at its operating subsidiaries, particularly at PT MNC Tbk., which we estimate will contribute more than three quarters of the total dividends received at the holding company level over the next 12-18 months.

"We believe PT MNC Tbk.'s balance sheet is sufficiently robust to absorb higher dividend payouts or exceptional dividends, with a debt-to-EBITDA ratio below 2.0x. Such payments to MNC Investama could provide a source of partial repayment for the maturing bonds. Nevertheless, we believe PT MNC Tbk.'s management may not elect to raise payout too substantially, given PT MNC Tbk. faces its own 2017 refinancing requirement," Mr. Jean said.

As a result of those factors, we believe MNC Investama will likely need to refinance most of its US$365 million bond. Such refinancing would in turn likely depend on the willingness of debt providers to be subordinated to the secured creditors at MNC Investama's operating companies, and to accept lending to the holding company level.

We regard refinancing risk at the operating companies for their respective maturing syndicated bank loans to be less elevated than that of MNC Investama. We understand that refinancing at MNC Sky Vision is currently in progress with a targeted completion in September.

The negative outlook reflects persisting refinancing risk, and the prospect of a further rating downgrade within the next six to nine months in the absence of a credible refinancing strategy for the company's maturing debts, especially its 2018 U. S. dollar-denominated bonds.

We could lower the rating by one notch or more if MNC Investama fails to offer and start implementing a comprehensive refinancing strategy for its maturing U. S. dollar notes within six to nine months. We could lower the rating by more than one notch if we see a growing likelihood of the company executing what we consider a distressed exchange, including material capital market transactions to purchase the notes at below par value.

We could revise the outlook to stable if MNC Investama puts in place a comprehensive refinancing strategy for its maturing notes. Our base case contemplates a successful refinancing of MNC Sky Vision's bank loans within the next three months. Therefore, the completion of this refinancing, in itself, is unlikely to lead us to revise the outlook to stable.