OREANDA-NEWS. Fitch Ratings Indonesia has affirmed PT Greenwood Sejahtera Tbk's (Greenwood) National Long-Term Rating of 'BBB+(idn)' with Stable Outlook. The agency has also affirmed the 'BBB+(idn)' rating on Greenwood's IDR1.5trn bond programme and IDR72bn tranche 1 bond that was issued under the programme.

'BBB' National Ratings denote a moderate default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions are more likely to affect the capacity for timely repayment than is the case for financial commitments denoted by a higher rated category.

Greenwood is a small commercial property developer with projects in Jakarta's central business district (CBD) and Surabaya. The company's recurring revenue, low leverage profile (net debt/ net inventory expected at 13.9% in 2015, 18.1% in 2016, and 15.6% in 2017) and limited exposure to US dollar debt underpin the Stable Outlook during this period of weaker presales.

KEY RATING DRIVERS

Weak Presales, Delayed Capex: Greenwood revised down its presales target for 2015 as demand for property remains weak. Greenwood has managed to book approximately IDR163bn in presales in the first half of 2015, mostly from the Capital Square project in Surabaya. Greenwood had planned to issue a total of IDR500bn of bonds to fund planned investments, but has only raised IDR72bn. The company has scaled back land acquisitions and postponed the launch of several projects because of the lower cashflows and lower bond proceeds. We forecast Greenwood's 2015 presales to reach around IDR215bn compared with 2014 presales of IDR272bn.

Sufficient Recurring Cashflows: Greenwood's rating is supported by recurring cashflows from dividends and recurring income from a mature asset portfolio. This compensates for significantly lower development sales as demand for office space and middle- and upper-range residential projects remains muted in 2015. We expect Greenwood to be able to maintain recurring interest coverage of about 2.8x in 2015, and around 1x thereafter.

Small Scale, High Development Risk: Greenwood's rating reflects its small development scale over the short to medium term. Limited project diversification renders the company's cashflows more vulnerable to economic downturns, compared with township developers with large and low-cost land banks. Execution risk is also present as Greenwood is expanding into new areas and cities. However, we believe Greenwood's conservative approach to marketing sales and land acquisition, and high development margins are important mitigating factors.

More Aggressive Capital Structure: We expect Greenwood to take on more debt over the medium term to finance the construction of its projects. Nevertheless, we expect turnover (presales/gross debt) to remain high at 84%, 166% and 139% in 2015, 2016 and 2017, respectively. Greenwood's recurring cashflows, high development margins and relatively low leverage (net debt/ net inventory) compared to that of its peers mitigate the risks related to the higher debt.

Good Funding Access: The rating also reflects Greenwood's relationship with its ultimate shareholder. Fitch believes this allows good access to funding, which would otherwise likely have been difficult or costly given Greenwood's small scale and limited track record in the property development business.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Greenwood include:
- Presales of around IDR215bn for 2015, mainly from the Capital Square project
- Additional IDR400bn of bank loans in 2016 to finance TCC Batavia T2 project

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Pressure on liquidity, which could be indicated by insufficient cash to cover short-term debt
- Lower-than-expected marketing sales so that presales/gross debt remains below 30% on a sustained basis (2015 forecast: 84%).

Positive rating action is not expected over medium term due to Greenwood's small development scale and high development risks.