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) – Local developer, PT Lippo Karawaci Tbk (IDX: LPKR) raised US$95 million from its five-year bond issuances planned $325 million, said the company today (01/11). The bonds have coupon rate 7.80 percent or 32.5 basis points lower than the bonds launced in January, 2020, representing a price of $101.29.

This latest tap issue is supported by joint global coordinators and joint book-runners Credit Suisse, BNP Paribas, Deutsche Bank, Citi, CIMB and Mandiri Sekuritas. All proceeds will be use to repay remaining bonds maturing in 2022, implying that the company will have limited debt maturing over the next five years.

The CEO, John Riady, commented: “We were working on different options to refinance our remaining 2022 bonds and provide a clear path of limited maturities through 2025. Now, we are positioned with no major debt maturities until 2025 and we will focus on new landed residential launches, sale of inventory and overall marketing sales improvements.”

Early of this year, Lippo Karawaci launched a five-year bond, valued at $325 million with offering price 8.125 percent. 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.

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 the developer’ consolidated financials, including inter-company 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 the company’ credit quality.

Moody’s has considered Lippo Karawaci’ 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. Its 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 the unit of Lippo Group‘ 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

US$1: Rp14,000

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