Indonesia's Lippo Karawaci Secures Funding US$1.01B
Lippo Group through PT Inti Anugerah Pratama sold around 9.44 percent its share ownership in property developer PT Lippo Karawaci Tbk - Photo by the Company

JAKARTA (TheInsiderStories)–Theta Capital Pte. Ltd., a wholly-owned subsidiary of PT Lippo Karawaci Tbk (IDX: LPKR) issues a backed senior unsecured notes US$75 million. Moody’s Investors Service has assigned a rating of B2 to the senior unsecured notes due 2020.

The notes are guaranteed by Lippo Karawaci and some of its subsidiaries and
rank pari passu with the 2022 notes and 2026 notes. The rating outlook is negative.

Jacintha Poh, a Moody’s Vice President and Senior Analyst in a statement released on June, 1 explained because the notes are not exposed to either legal or structural subordination risk, the rating is in line with Lippo Karawaci’s B2 corporate family rating.

It said, Lippo Karawaci will use the net proceeds from the issuance towards refinancing outstanding amounts of the term loan under the facility
agreement with UBS AG as facility agent, and for general corporate

At 31 March 2018, 79 percent of firms’s total debt was unsecured. And, the majority of the company’s borrowings are at the holding company.

“The proceeds from this private placement covers only around half of Lippo
Karawaci’s debt maturity in 2018 and 2019.Consequently, the company will need to execute its plans to improve liquidity at the holding company over the next 12-18 months,” adds Poh.

The publicly listed firm is considering a few asset sale plans and if executed successfully, the company own by local tycoon Riyadi’s family will generate sufficient cash flow to cover its funding gap over the next 12-18 months.

The company’s B2 corporate family rating reflects volatile operating cash flow generation at the holding company level that is reliant on asset sales, which are in turn subject to delays and market conditions.

Moody’s assesses Lippo Karawaci’s operating cash flow at the holding company as the total consolidated cash flow excluding the cash flow of
PT Siloam International Hospitals Tbk (IDX: SILO ) and PT Lippo Cikarang Tbk (IDX: LPCK), but including any inter company cash flow, such as dividends and proceeds from asset sales.

The rating outlook is negative, reflecting uncertainty around the execution of Lippo Karawaci’s asset sales, which can result in further deterioration of the holding company’s liquidity over the next 12-18 months.

Given the negative rating outlook, an upgrade is unlikely over the next 12-18 months. The outlook could return to stable if the Lippo Group‘s unit executes its asset sales, such as operating cash flow at the holding company level is sufficient to cover its interest payments and there is sufficient cash at the holding company level to meet debt repayment over the next 12 months.

However, Lippo Karawaci’s ratings could be downgraded if the company
is unable to address its refinancing risk in a timely manner and there is a delay or inability to execute asset sales, such that operating cash flow at the holding company level is insufficient to cover interest payments.

The property operator’s senior unsecured bond rating could also be lowered if
debt is incurred at the subsidiary level.

While, Lippo Group’s property arm Lippo Cikarang, which is currently developing a new satellite town project called Meikarta has reached a deal with ten global institutions to utilize and develop 273,000 square meters of land in the satellite town with an investment value of $550 million.

Meikarta is being marketed as a 500-hectare property development project, consisting of 100 hectares of open green space, 250,000 units of prime residential property, and 1,500,000 square meters of prime commercial space. The Rp 278 trillion project is expected to bring a multiplier effect to the now mostly industrial area.

Lippo Karawaci is one of the largest property developers in Indonesia, with a sizable land bank of around 1,327 hectares as of 31 March 2018. It owns and manages — either directly or via its real estate investment trusts — 48 malls, 33 hospitals and nine hotels.

Lippo Karawaci owns a 27.72 percent stake in First REIT and a 29.99 percent stake in Lippo Malls Indonesia Retail Trust. In the other hand, the company has a further reduction in its ownership of Siloam International Hospitals to below 60 percent.