S&P Global Ratings had characterized the proposed terms as tantamount to a default because of the proposed terms, which is why Indonesia PT Kawasan Industri Jababeka secured the backing of creditors to exchange nearly 90% of its $300 million of debt due in 2023 for new bonds.
The junk-rated company said investors offered up to 2023 notes with an aggregate principal of $265.5 million to exchange for new bonds maturing in 2027. Bond holders who didn't participate in the swap are expected to get a payout next year.
The company has an industrial complex east of Jakarta about the size of Manhattan, and it plans to exchange its bonds is evidence of the mounting difficulties faced by real estate firms across Asia as interest rates rise. In October Korea seized up its credit market after a developer defaulted on its debt, while in Vietnam the sector has been the target of a regulatory crackdown.
The Indonesian builder sold the 6.5% bonds in 2016 to raise money for general corporate purposes, with plans to build industrial cities and tourist resorts across the country. Some of the projects were derailed by the 2018 tsunami and the Pandemic.
The price of Jababeka's bond for 2023 has dropped by more than a third this year. It was up 0.4 cents to 60.515 cents on Friday.
This may not necessarily signal improved confidence among investors, said Edward Ariadi Tanuwijaya, head of research at Korea Investment Sekuritas Indonesia, which is positive news for borrowers in the real estate sector that need to refinance or extend debt.
When Jababeka announced the exchange, both Fitch Ratings and S&P Global Ratings raised red flags.
Fitch said there was a significant reduction in terms, in part because of the new debt, a coupon with a step-up ranging from 7% to 9% in annual increments of 50 basis points instead of a fixed cash-coupon.
S&P warned that the coupon structure of the new bonds wouldn't adequately compensate participants. Jababeka s credit rating was lowered to CC last month and flagged the potential for further cuts.
The sustainability of Jababeka's capital structure depends on its ability to increase its positive free operating cash flow post the exchange offer, S&P wrote, adding that it expects to reduce the firm s issuer rating to selective default upon completion of the exchange.
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