Wed 10/13/2021 01:02 AM
Share this article:
Relevant Documents:
Excel Tear Sheet on Reorg Analysis Page
2017 $300 million 6.5% Senior Notes Due 2023 Offering Memorandum (2017 OM)
2020 Annual Report
1H’21 Financial Statements
Sep’21 Company Presentation
Reorg Asia’s Highlights:



  • Jababeka’s worsening leverage trend and limited financing diversity poses refinancing headwinds;


  • Weakened recurring revenue streams as Bekasi Power faces oversupplied grid - this poses renegotiation risk over offtake agreement with PLN and could reduce prospective recurring EBITDA interest coverage;


  • Improving marketing sales, relatively steady average selling prices help improve funding mix as Jababeka collects more cash from customer advances/ deposits;


  • Landbank in Cikarang and Kendal provide substantial credit support but realisation of value could be over a long duration;


  • Recent AGM quorum failures are indicative of weak unity amongst substantial shareholders.




Indonesian industrial real estate developer and infrastructure provider PT Kawasan Industri Jababeka Tbk (Jababeka) is in the midst of seeking shareholders’ approval to issue up to $350 million of new notes in order to refinance its existing $300 million 6.5% due October 2023 senior notes. Jababeka’s leverage metrics and recurring revenue streams have worsened over the past few years and it has demonstrated limited diversification of financing sources that may be necessary for it to successfully tap USD debt capital market for its upcoming refinancing exercise. Continue reading for analysis and reporting on Jababeka from our Asia Core Credit team, and request a trial to access further intelligence on refinancing situations across Asia. 

Indonesian issuers that have successfully priced a new issuance this year such as PT Gajah Tunggal Tbk, PT ABM Investama Tbk and PT Bukit Makmur Mandiri Utama have raised fresh bank financing as part of their broader refinancing efforts while those that have attempted but failed to price a new issuance such as PT Tunas Baru Lampung Tbk and PT Sri Rejeki Isman Tbk have had limited banking support in extending their debt duration profile thus far, amongst other factors.

While Jababeka’s due 2023 senior notes have rallied significantly since the pandemic lows in 2020, its recent credit spread of more than 800bps OAS indicates doubts on the company’s ability to carry out a successful refinancing under recent market conditions despite improving fundamentals:

Source: Refinitiv

Jababeka’s capital structure is below:




































































































































































































































Kawasan Industri Jababeka Tbk


06/30/2021

EBITDA Multiple

(IDR in Billions)

Amount

Price

Mkt. Val.

Maturity

Rate

Yield

Book

Market


Standard Chartered Bank 1

18.0


18.0

Dec-31-2021

USD LIBOR + 3.830%


Total Short-term Bank Loans

18.0

18.0

-x

-x

PT Bank Central Asia Tbk 2

18.8


18.8

Aug-29-2021

5.250%


PT Bank Negara Indonesia (Persero) Tbk 3

11.8


11.8

Apr-23-2023

11.750%


PT Bank Tabungan Negara (Persero) Tbk 4

67.1


67.1

May-03-2022

10.500%


PT Bank Rakyat Indonesia (Persero) Tbk 5

2.0


2.0

Apr-22-2022

12.500%


OCBC NISP 6

-


-




Total Long-term Bank Loans

99.7

99.7

0.2x

0.2x

Lease Payables

2.5


2.5




Total Leases

2.5

2.5

0.2x

0.2x

$300mil 6.5% Oct'23 senior notes 7

4,327.1

96.9

4,193.0

Oct-05-2023

6.500%

7.700%

Total Senior Notes

4,327.1

4,193.0

7.0x

6.7x

Total Debt

4,447.3

4,313.2

7.0x

6.7x

Less: Cash and Equivalents

(1,153.7)

(1,153.7)

Net Debt

3,293.6

3,159.5

5.2x

4.9x

Plus: Market Capitalization

3,505.9

3,505.9

Enterprise Value

6,799.5

6,665.4

10.6x

10.4x

Operating Metrics

LTM Reorg EBITDA

639.3


Liquidity

Plus: Cash and Equivalents

1,153.7

Total Liquidity

1,153.7

Credit Metrics

Gross Leverage

7.0x

Net Leverage

5.2x

Notes:
EBITDA calculations includes other recurring income/ expenses except for FX losses, one-time gains/ losses, associates, derivative movements; other sources of liquidity includes short-term investments; OCBC term loan of IDR 100B undrawn as of June 30; NCI of IDR 1.06T
1. Rate: L + 350-415 bps, Borrowed by subsidiary, PT Bekasi Power - ListCo acts as guarantor - Collateralized by PPE with 1.5x coverage - Facility automatically rolls over every 12 months
2. Borrowed by PT Gerbang Teknologi to fund warehouse construction - Collateralized by 4 SHGBs with 1.25x coverage, Extension grace period of 1 year possible
3. Borrowed by 60%-owned PT Jababeka Creed Residence to finance Kawana Golf - Collateralized by SHGB worth IDR 62.5bn vs IDR 50bn facility
4. Borrowed by 51%-owned PT Jababeka PP Properti to finance 1,020 apartment units - Collateralized by underlying land and apartment units
5. Borrowed by subsidiary, PT Banten West Java Tourism Development; Secured by inventory and land
6. Rate: Prime Lending Rate + 0.05%; Tenor: 4 years; Collateralized by SHGB at Kendal JV, 51%-owned KIK level; term loan of up to IDR 100B yet to be drawn
7. Guaranteed by ListCo; FCCR 2.25x



The company has no significant maturities over the next two years and its balance sheet has averaged more than IDR 1 trillion ($70 million) of cash and equivalents over the past seven quarters, giving it time and the liquidity wherewithal to consider options:


Note: 98.2% of Jababeka’s outstanding borrowings are denominated in USD as of June 30; $200 million notional FX hedging in place through call spreads ranging from USDIDR 13,700 - 15,700. Maturity profile excludes IDR 2 billion working capital facility.

Jababeka’s corporate structure - indicating the relevant guarantor entities for the due 2023 senior notes - is below:

Click HERE to Enlarge

Credit & Financial Analysis

Jababeka’s upcoming attempt to price a new issuance is not helped by its leverage metrics which have generally worsened over the past 6.5 years:


Note: Jababeka’s weak EBITDA interest coverage ratio as shown above may limit its ability to to incur additional indebtedness which is subject to a fixed charge coverage ratio limit of 2.25x under its covenants for its due 2023 senior notes but there are $30 million of permitted indebtedness baskets to tap, if these have not already been used.

The trend above has come about as Jababeka real estate segment’s profitability has declined while its infrastructure-related segments have been contributing lower estimated recurring EBITDA interest coverage:


However, Jababeka’s marketing sales and infrastructure revenues have picked up in the first half of 2021 and this could indicate the company is finding a firmer financial footing in the quarters ahead as Indonesia’s Covid-19 situation improves. As a result of improving marketing sales, the company has collected more customer advances and deposits, improving its funding mix vis-a-vis debt:


Prior to the pandemic, Jababeka averaged IDR 1.3 trillion of total marketing sales from 2013 to 2019 and as of September, the company is targeting IDR 1.4 trillion (implied attributable: ≤ IDR 1.2 trillion because IDR 400 billion is targeted for the 51%-owned Kendal industrial park level) of marketing sales in 2021, signaling a recovery this year:


Jababeka’s Kendal industrial park is owned through a joint venture, PT Kawasan Industrial Kendal, with Singapore’s Sembcorp Development as seen in the corporate organisation structure chart above.

Jababeka’s marketing sales has shown a moderate correlation against its recognised real estate revenue with an R2 value of 65% from 2013 to 2020.

Jababeka’s real estate average selling prices (ASPs), however, have been generally flat, suggesting limited pricing power at its industrial estates:


In its corporate materials, Jabebeka breaks down its revenue into three groups which can be further subdivided into a dozen categories:


Based on Reorg’s review of Jababeka’s past financial disclosures, the company’s revenue and profitability has been largely contributed by two main business groups, with the company’s asset base largely made up of its industrial land bank and infrastructure-related fixed assets. The two main business groups are:

Pillar 1 - Real Estate

  • Developed industrial land sales;

  • Residential houses and land;

  • Office spaces and shophouses;


Pillar 2 - Infrastructure

  • Bekasi power plant;

  • Real estate services and maintenance fees; and

  • Dry port.


Landbank Value - Cikarang, Kendal

Under pillar 1, while Jababeka has recognised significant completed residential, commercial and industrial real estate sales, developed land sales tend to contribute the largest absolute amount of revenue and gross profitability through the monetisation of its substantial landbank in Cikarang (Kota Jabaeka township) and Kendal industrial estate.


Note: Jababeka’s financial disclosure indicates that the “accumulated cost of land for development is transferred to inventories upon the commencement of the development and construction of the infrastructure.”

From the table above, Jababeka’s landbank in Cikarang (Kota Jababeka township) that is carried as “inventory” on the balance sheet could have a market value of IDR 4.3 trillion when extrapolated from historical weighted average selling prices as disclosed by the company.

According to Indonesian real estate broker, Colliers Indonesia, the average land price in the Bekasi Regency which includes the Cikarang area, had averaged IDR 2.27 million/sqm in the second quarter of 2021. When extrapolated, this implies that Jababeka’s Cikarang land inventory could be worth IDR 3.5 trillion - this figure probably represents a lower end estimate of extrapolated market value given that Jababeka’s township in Cikarang is regarded as relatively mature.

Reorg’s review of Jababeka’s financial disclosures indicates that the company’s landbank in Cikarang that is carried as “inventory” as of June 30 appears unencumbered and the above extrapolated market values could cover at least 80% of the face value of the due 2023 senior notes at recent exchange rates. Nevertheless, Jababeka’s ability to incur additional indebtedness may be limited as alluded to above.

However, unless Jababeka’s land sale accelerates, the relatively long duration nature of the landbank - as suggested by the quarterly pace of marketing sales - implies a lower present value as compared to extrapolated market values indicated above. This may also explain Jababeka’s so far limited diversity of financing sources as bankers may be concerned about duration mismatches and subsequent refinancing risks.

Further, considering that most of Jababeka’s landbank is held as “land for development”, a significant amount of capital expenditures may be required for construction of infrastructure before it can be marketed and sold as “developed land” to its industrial customers.

Since 2015, Jababeka’s EBITDA to cash flow conversion has been largely dragged down by interest payments and landbanking activities, with the latter mostly taking place from 2015 to 2017:


In its 2017 OM, Jababeka indicated that it “strives to maintain a minimum land bank visibility of industrial land at Kota Jababeka of five years” and on average over the last three years, it has acquired around IDR 100 billion of land for development in each fiscal year.

Bekasi Power Plant

Jababeka’s recurring revenue streams as made up through its infrastructure-related businesses can be broken down into:


As seen from the chart above, the power plant segment as contributed by wholly-owned subsidiary, PT Bekasi Power, has been the predominant contributor to pillar 2’s revenue.

Bekasi Power has a 20-year off-take agreement with state-owned power company, PT Perusahaan Listrik Negara (PLN), from 2013 to 2023 through a 130MW gas fired combined cycle plant with fuel costs passed through to PLN.

The weakness in Bekasi Power’s revenue has been attributed to “reserve shutdown” that has occurred during various periods from 2018 to 2021 and this has been requested by PLN. In Jababeka’s 2018 annual report, the company said that PLN’s imposition of a reserve shutdown was a result of electricity oversupply on the Java-Bali power grid because Bekasi Power had a higher than average production cost on that grid.

In its September 2021 presentation, Jababeka indicated that Bekasi Power’s electricity rate was $11 cents/ kwh or IDR 1,560/ kwh - this appears to be higher than PLN’s 2020 average tariff rate of IDR 1,101/ kwh for industrial customers in West Java where Bekasi Power is located.

For a certain part of West Java, PLN reported a capacity factor of 38.5% in 2020. Over the past five years:


PT Cikarang Listrindo Tbk, a public electricity company that supplies power to industrial estates in the Cikarang area, has seen its net capacity factor decrease to as low as 56% in the first half of 2021 as compared to 77% in 2017. Cikarang Listrindo defines net capacity factor as the ratio of a power plant’s total electricity generation in a given period to its maximum possible electricity generation.

Cikarang Listrindo’s stock price and valuation multiple has steadily de-rated over the past 5 years:

Source: Refinitiv

In a December 2020 report, the Asian Development Bank indicated that overcapacity in the Java-Bali grid will probably last beyond 2026 due to over-investment in PLN’s capacity as electricity demand growth has lagged economic growth.

As such, Bekasi Power could be part of a Java-Bali electricity grid that is over-supplied and its power plant could continue to experience “reserve shutdown” that would negatively affect recurring revenue generation.

In 2018, Fitch flagged the possibility of a contract renegotiation between Bekasi Power and PLN - this is likely to remain a significant downside risk factor for Jababeka’s power subsidiary.

Jababaka’s dry port and service/ maintenance segments combined, while broadly increasing since 2015, have not been able to offset the decrease in Bekasi Power’s revenue contribution.

In terms of throughput and utilisation, Jababeka’s dry port at Cikarang saw a declining trend even before the pandemic and capacity utilisation remains relatively low:


2019 Shareholders’ Dispute, 2021 AGM Quorum Failure

As previously covered by Reorg, the Central Jakarta District Court in March had declared invalid the company’s AGM of shareholders held on June 26, 2019 - including the resolution on the appointment of certain members to the Board of Directors and Board of Commissioners relating to Sugiharto and Aries Liman.

Sugiharto and Aries Liman were part of a June 2019 change of control controversy as reported when at a company AGM then, the former was appointed as president director of Jababeka and the latter as president commissioner.

The June 2019 appointments of Sugiharto and Aries Liman were proposed by then substantial shareholders, PT Imakotama Investindo and Islamic Development Bank, as reported.

While the Islamic Development Bank continues to be a substantial shareholder of Jababeka with a stake of 11.7% as of June 30, Imakotama Investindo ceased being a substantial shareholder of Jababeka as of the third quarter of 2019, according to Reorg’s review of Jababeka’s previous financial disclosures.

Indonesian media outlets reported that Sugiharto passed away in July because of Covid-19. Sugiharto was a former Minister of State-owned Enterprises, the same reports point out.

Aries Liman appears to still be on the board of commissioners of PT Panin Sekuritas Tbk as of Oct. 8, a financial services company that is 29%-owned by PT Bank Pan Indonesia Tbk as of June 30.

Certain shareholders of Jababeka, including the grandson of Mu’min Ali Gunawan, filed suit against the company, its notary and members of the boards of directors and commissioners in October 2019, as reported.

Gunawan holds a 21.1% stake in Jababeka as of June 30 and who together with other members of his family, are the majority shareholders of PT Bank Pan Indonesia Tbk as of June 30. Bank Pan’s market capitalisation is $1.3 billion as of Oct. 8.

According to the Jakarta Globe, Gunawan was the brother-in-law of Mochtar Riady, founder of the Lippo Group, including PT Lippo Karawaci Tbk (LPKR). Reorg’s review of LPKR’s June 30 financial disclosures show that LPKR continues to hold a small stake in Jababeka that it marked at IDR 342.8 billion as of June 30, down from around IDR 2 trillion as of 5 years ago according to one of LPKR’s senior notes offering memorandum.

Jababeka was founded by Setyono Djuandi Darmono and Hadi Rahardja, the latter passed away on Sept. 26 as reported.

Jababeka’s 2017 OM stated that approximately 47% of its outstanding shares were held by various corporate entities that were indirectly controlled by the families of Darmono and Rahardja. As of June 30, Jababeka’s financial disclosures indicate that Rahardja directly held a 2.8% stake in Jababeka.

On Sept. 28, Jababeka’s second AGM failed to reach quorum to pass two resolutions relating to the provision of corporate guarantees by the company’s subsidiaries for its proposed $350 million new notes and the amendment and restatement of the company’s articles of association, respectively.

Incidentally, the second AGM was only attended by shareholders representing 46.8%, or 9.6 billion of the company’s total shares, as reported.

Jababeka’s share count as of June 30, 2017 was 20.7 billion shares, similar to the June 30, 2021 share count of 20.8 billion, according to Reorg’s review of the company’s past disclosures.

-- Junguang Tan

Share this article:
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2021 Reorg Research, Inc. All rights reserved.
Thank you for signing up
for Reorg on the Record!