Moody’s announced on its site on April 13 that it had assigned a Baa3 issuer rating to Hutama Karya, the first time the agency has done so. In its announcement, it said that “the rating outlook is stable”.

Fitch, on the other hand, released a rating action commentary on Sunday saying that it had assigned the company a Long-Term Foreign-Currency Issuer Default Rating (IDR) of BBB-. Meanwhile, PT Fitch Ratings Indonesia assigned a national long-term rating of AA+(idn) to the company. Mirroring Moody’s statement, Fitch described Hutama Karya’s rating outlook as stable.

Hutama Karya was chosen by the Indonesian government to build the trans-Sumatra toll road project, one of the government's national strategic projects that aims to improve transportation infrastructure in the country.

This year, the company set a target to finish 211 kilometers of the toll road, as reported by Kontan. Spanning more than 2,700 km, the toll road will be the longest in Indonesia upon completion.

“HK’s [Hutama Karya] standalone credit profile reflects its position as one of the largest engineering, procurement and construction (EPC) companies in Indonesia by revenue, with a track record of completing large projects,” Moody’s vice president and senior analyst Abhishek Tyagi said in a written statement on April 13.

“Its standalone credit profile also reflects its growing toll operations as the sole developer and operator of the large, multi-year, trans-Sumatra project.”

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Tyagi explained that the agency believed the government, as a result of owning 100 percent of the company, would have “very high support” for it, with operations and a budget that would be closely supervised. The company also has government-guaranteed debt for its toll road project, which accounts for 78 percent of its outstanding debt as of December 2019.

Aside from that, Moody’s pointed to Hutama Karya’s diversified business profile, which has multiple revenue-generating segments while also being included in a government plan to accelerate infrastructure development in the country, as reasons behind the rating.

However, Moody’s noted that the rating could be downgraded if the company was to bid aggressively to win new contracts, which would result in a deterioration of the company’s financial profile, or if it was to experience a substantial decline in new contracts and incurred large cost overruns and project delays.

Fitch said Hutama Karya’s “strong linkages” to the government were a reflection of the company’s strategic importance to the infrastructure development program.

“This differentiates HK from its construction peers, as it is the only wholly government-owned construction company with government-guaranteed debt,” a release published on Sunday states, adding that the government’s support to the company was reflected in equity injections, asset securitization and construction support.

From the trans-Sumatra toll road project alone, Hutama Karya obtained a total of Rp 65 trillion worth of new contracts between 2016 and 2019, 62 percent of the total contracts won during the period.

Despite this, Hutama Karya’s standalone credit profile (SCP) is lower than PT Waskita Karya due to its weaker financial profile.

“HK has a smaller order book than Waskita, but we believe that HK’s order book will grow to a comparable size when the trans-Sumatra toll road development increases pace in the next few years,” Fitch says.

Aside from the company’s healthy order book growth, Fitch also noted that the company would only be “moderately affected” by the COVID-19 crisis over the next few quarters as the planned Rp 3.5 trillion equity injection by the government for 2020 remained intact, even after a revision of the government's initial budget.