Alam Sutera to reduce foreign exchange exposure amid plan to issue $485m global

Publicly listed property developer PT Alam Sutera Realty has vowed to reduce its foreign exchange exposure toward the US dollar in the long run despite the company’s plan to issue a maximum US$485 million in global bonds.

Alam Sutera president director Joseph Sanusi Tjong said on Aug. 28 that the company would hedge its liquidity after issuing the global bonds to prevent additional loss from foreign exchange. The global bonds are part of the company’s refinancing effort for its maturing bonds.

Alam Sutera posted Rp 271.5 billion (US$18.5 million) in foreign exchange loss during the first half of 2020, a turnaround from the Rp 122.2 billion profit it posted in the same period last year, the company’s financial report showed.

The foreign exchange loss also largely contributed to the company’s total loss of Rp 512.5 billion from January-June, compared to the Rp 158.7 billion profit it posted in the same period in 2019.

“We are taking into account the foreign exchange factor during our refinancing efforts. After that, we will hedge our position so we will receive compensation if the rupiah weakens,” Joseph said during a press briefing held by the Indonesia Stock Exchange (IDX).

The global bonds are expected to carry maximum annual coupons of 13 percent.

Alam Sutera has two maturing global bonds, with the first bond amounting to $115 million with 11.5 percent interest due in April next year and $370 million bonds with 6.6 percent interest due in April 2022.

Ratings agency Fitch recently downgraded Alam Sutera’s long-term issuer default rating, as well as its two maturing bonds to CCC- from B-, amid the heightened liquidity risk due to the company’s limited progress in securing the maturing bonds’ refinancing.

Alam Sutera has appointed PT UBS Sekuritas Indonesia and PT JP Morgan Sekuritas Indonesia as underwriters for the upcoming global bonds and is continuing preparations for the bonds issuance, according to Joseph.

Joseph added that the company was committed to reducing dollar-denominated debts into a more balanced level and aims to convert part of the debts into the rupiah to reduce the exposure.

“The company remains committed to slowly reducing dollar debt exposure. We are also hoping to convert a portion of these debts into the rupiah,” he said.

The company’s cash assets stood at Rp 888 billion as of June this year, a 26.7 percent dive from Rp 1.2 trillion by the end of 2019.

Joseph also stated that he expected lower gross sales and net income this year due to the economic downturn caused by the COVID-19 pandemic.

“Regarding this year’s top line and bottom line [growth], we believe it will be lower compared to last year’s number. We have conditioned our company with the current property industry’s cycle by selling our products at a lower price,” he said.

Alam Sutera posted Rp 919.5 billion in revenue in the first half of the year, down 28.9 percent from Rp 1.28 trillion in the same period last year.

Meanwhile, the property developer posted a slight increase in marketing sales during the first half of 2020 at Rp 1.36 trillion, from Rp1.34 trillion during the same period last year. The company aims to book Rp 2.5 trillion in marketing sales this year.

Alam Sutera investor relations officer Tasha Remisha said the company would also reduce its capital expenditure as it had acquired sufficient land banks for development.

“We will not aggressively acquire land anymore because our land bank has reached a sustainable level for the next 30 years,” she said.

The company’s capital expenditure for land banks has dropped from Rp 1.08 trillion in 2017 to Rp 423 billion in 2019, according to Alam Sutera’s presentation.

Read More: Alam Sutera to reduce foreign exchange exposure amid plan to issue $485m global

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