JAKARTA (TheInsiderStories) – Indonesian property company, PT Lippo Karawaci Tbk (IDX: LPKR) launched a five-year bond, valued at US$325 million, said the company on Jan. 14. The notes will offer a yield of 8.125 percent and the proceeds will be used to partially repay bonds maturing in 2022.
The bond being oversubscribed by 4.5 times and having an order book of $1.45 billion. Now, the company is in the final stages of securing a facility to refinance the remaining $100 million in bonds upon which unit of Lippo Group and will have no debt maturities over the next five years until 2025.
John Riady, CEO of LPKR, commented: “We will use the proceeds toward paying off our 2022 bonds, meaning we will have limited debt due until 2025.”
This latest bond issuance is supported by global book runners Credit Suisse, BNP Paribas and Deutche Bank. Moody’s Investors Service has assigned B3 rating to the proposed senior unsecured notes to be issued by Theta Capital Pte. Ltd.
“The proposed notes are not exposed to either legal or structural subordination risk, therefore the rating is aligned with Lippo Karawaci’ B3 corporate family rating,” says Jacintha Poh, a Moody’s VP and senior credit officer.
At Sept. 30, nearly all of Lippo Karawaci‘ consolidated borrowings were held at the holding company and around 92 percent of these borrowings were unsecured. Moody’s analyzed the holding company’ position using Lippo Karawaci’s consolidated financials, including intercompany transactions, with the exception of the financials of PT Siloam International Hospitals Tbk (IDX: SILO) and Lippo Cikarang Tbk (IDX: LPCK).
“We view Lippo Karawaci’ plan to refinance its 2022 notes ahead of the notes’ maturity, with a mix of US dollar debt and Indonesian rupiah loans as credit positive,” adds Poh. “By planning ahead, Lippo Karawaci is demonstrating proactive capital management and reducing its exposure to foreign exchange risk.”
In July 2019, Lippo Karawaci completed its rights issue, raising a total of Rp11.2 trillion ($800 million).The company has also made progress on its debt reduction initiatives by repaying up to around $186 million of outstanding debt as of third quarter (3Q) of 2019 and investment initiatives by restarting construction work on existing projects and subscribing to Lippo Cikarang’ pre-emptive rights, with the proceeds used to fund the Meikarta project.
However, the company stated that the sale of its Lippo Mall Puri to Lippo Malls Indonesia Retail Trust (Ba3 stable) will be delayed to mid-2020 from the end of 2019, due to a regulatory strata-titling process. While Moody’s expects that liquidity at the holding company will remain adequate over the next 12 months, further delays to the completion of its mall sale will pressure liquidity.
Lippo Karawaci‘ B3 rating takes into account the company’s reliance on asset sales and external funding, which stems from its weak core property development business, because it has not launched a new project since 2016 at the holding company level.
While external funding and asset sales will alleviate liquidity risk at the holding company level over the next 12 months, Moody’s views that successful new project launches are required to support a fundamental improvement in Lippo Karawaci’ credit quality.
With respect to Environmental, Social and Governance risks, Moody’s has considered Lippo Karawaci’s weak execution track record, which resulted in liquidity pressure that was recently relieved by an Rp11.2 trillion rights issue backed by the Riady family.
Moody’ has also considered the founding family’ concentrated ownership of the builder. However, the risk is mitigated by the oversight exercised through the presence of strategic minority shareholders on the board and partially balanced by demonstration of support from its key shareholder.
The stable outlook on Lippo Karawaci‘ ratings reflects Moody’s expectation that the company will have sufficient cash to fund its operating cash needs and service its debt obligations over the next 12 months. She said, the ratings are unlikely to be upgraded, as long as the company’ ability to service its debt is contingent upon its ability to execute assets sales.
However, positive momentum could build, if the company’ core property development business improves, such that successful project launches result in higher operating cash flow at the holding company level.
Lippo Karawaci is a listed property company in Indonesia, with a sizable land bank of around 1,248 hectares as of 30 June 2019. It owns and/or manages — either directly or via its real estate investment trusts— 51 malls, 36 hospitals and 10 hotels. The developer also owns a 9 percent stake in First REIT and a 32 percent stake in Lippo Malls Indonesia Retail
Written by Staff Editor, Email: email@example.com