OREANDA-NEWS. Fitch Ratings says that PT Kawasan Industri Jababeka Tbk's (Jababeka, B+/Stable/A(idn)) recurring interest coverage ratio remains sufficient to cover the company's interest expenses in the next 12-24 months even though it is taking on more debt to fund its Kendal project.

Fitch believes that an additional USD20m of debt incurred by Jababeka will not, in itself, impact the company's credit profile significantly for the next 12-24 months. We expect Jababeka's recurring interest coverage ratio to remain above 1x in the next 12-24 months because we expect its recurring earnings to increase, which will offset the higher interest expense associated with the new funding. There is no medium-term refinancing risks as Jababeka's USD260m senior notes are only due in 2019.

In the long term, successful execution of the Kendal estate in Central Java will provide diversification benefits and a foundation for future growth, as it reduces the company's project concentration on the Cikarang township.

PT Kawasan Industri Kendal, a joint venture between Jababeka (51% stake) and Singapore-based Sembcorp (49%), has tapped a USD20m credit facility that matures in 2018. The proceeds of the loan will be used to fund the development of infrastructure, such as roads and soil compaction, at Kendal to attract industrial investments at the estate.

Fitch expects the profit margin of the company's power plant business to improve due to increased utilisation and better efficiency. In 9M15, Jababeka's power plant business reported a 16.6% EBITDA margin, up from 14.4% in 2014. Jababeka's recurring income is also supported by its dry port business, which reported IDR89bn of revenue in 9M15, compared with IDR78bn for 2014. Gross margin also improved to 41.4% from 38.5% during the same period.

The official launch of the Kendal estate, probably in 2016, is likely to help boost Jababeka's presales, which have been flat in 9M15. Jababeka reported IDR712bn of presales in 9M15, unchanged from a year earlier, leading to annualised presales/ gross debt ratio of 26%. Management expects this to improve on account of an additional IDR475bn of presales in 4Q15 (FY15E: IDR1.19trn), while the rupiah's appreciation during the quarter will help to reduce the level of gross debt in local-currency terms.