Modernland Upgrade from Restricted Default

By administrator | July 19, 2020 | Property Real Estate.
Modernland Upgrade from Restricted Default
Illustration: Modernland Upgrade from Restricted Default

Modernland Upgrade from Restricted Default. The rating agency Fitch Ratings raise the rating of property issuers Modernland Realty Tbk (MDLN IJ). From restricted default to CC in line with the IDR 150 billion bond restructuring. In addition to restructure has made Modernland. Only pay the bond principal on July 7, 2021 from the original July 7, 2020.

However, Fitch assess that Modernland‘s liquidity conditions may not necessarily be improve. But still faced with the obligation to pay coupons for other debt bonds issue. CC’s rating on MDLN continues to reflect poor liquidity, and the possibility of default in the near future.

The financial flexibility of the company is also consider to have been reduce. And hamper by the weakening of the economy. Causing MDLN liquidity to continue to deteriorate. Modernland Realty‘s liquidity remains poor. And companies tend to face significant challenges in paying bonds, and paying interest.

Including coupon payments of USD 8 million for bonds. That will mature on August 30, 2020, writes Fitch. Therefore, Fitch also believes that the possibility of a restructuring option will be taken. By the company for bonds that will mature in the near future. The agency has also upgrade its debt securities worth USD 150 million.

Restricted Default Bonds

Modernland Upgrade from Restricted Default
Illustration: Modernland Upgrade from Restricted Default

As well as will mature in 2021 and bonds worth USD 240 million which will mature in April 2024 to become CC from C with a recovery rating of RR4. The bonds were issued by a subsidiary of MDLN, namely JGC Ventures Pte. Ltd. And Modernland Overseas Pte Ltd, each of which is guaranteed by the company.

And several of its subsidiaries. As an illustration, MDLN reported a decrease in cash to IDR 180 billion at the end of March 2020, from IDR 554 billion at the end of 2019, because the company faced difficulties in selling property and collection of past receivables. Fitch believes that MDLN sales will also weaken in 2Q20.

Due to worsening economic conditions triggered by the Covid-19 pandemic and large-scale social restrictions imposed by the government in April and May. Restricted default previous rating shows that the company may experience a default even though the company’s operational activities have not stopped.

However, MDLN had previously announced on July 14, 2020 that it had reached an agreement with the bondholders on the proposal for the restructuring. In the meeting, an agreement was taken that the restructuring included an extension of the maturity date to 7 July 2021 and a reduction in the interest rate to 10% from 12.5% ​​which Fitch considered as an effort to avoid the risk of default.

Modernland Realty Anticipates Restricted Default

As well as Modernland Realty anticipates restricted default. Modernland Realty agreed to extend the deadline for debt bond payments and reduce interest rates with bondholders. The agreement was reached at the General Meeting of Bondholders held on Tuesday (07/14). There were six agenda items at the meeting.

One of which was a change in interest rates and changes in the principal repayment date. During the meeting, as much as 88.73% of bondholders approved the change in the interest rate of Bonds for Phase I Series B to 10% from 12.5% ​​previously. This coupon rate applies to interest payments from the 21st payment period due on October 7, 2020.

In addition, changes to the principal repayment date have also been agreed. As many as 90.14% of bondholders agreed to extend the deadline for repayment of the principal to 7 July 2021. The meeting also approved a change in collateral value to 200% of the principal amount of Phase I Bonds in Series B.

The additional collateral was in the form of MDLN plots of land which located in Modern City, Tangerang, Banten. The additional collateral was approved by 90.14% bondholders. Meanwhile, as much as 88.03% of bondholders also agreed to the addition of provisions on accelerated payments by MDLN in the case of a cash balance and cash equivalent of at least 2 times the principal value of the bonds.

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