Singapore — Moody’s Investors Service has placed on review for downgrade the B1 corporate family rating of Lippo Karawaci Tbk (P.T.). At the same time, Moody’s has placed on review for downgrade the B1 backed senior unsecured rating of the bonds issued by Theta Capital Pte. Ltd., a wholly-owned subsidiary of Lippo Karawaci.
The bonds are guaranteed by Lippo Karawaci and some of its subsidiaries.
“The review for downgrade reflects our concern over Lippo Karawaci’s weakening corporate governance, as the company has again delayed financial reporting and has not fulfilled certain reporting obligations under the indentures of its US dollar notes,” says Jacintha Poh, a Moody’s Vice President and Senior Analyst.
As of 11 April 2018, the company has not filed its 2017 consolidated financial results with the Indonesian stock exchange. Moody’s points out that this is the third time over the last year that Lippo Karawaci has delayed its financial reporting.
The first delay was on its first-half results to 30 June 2017 due to a IDR3 trillion rights issue by its 51%-owned PT Siloam International Hospitals Tbk. The rights issue was completed in the last quarter of 2017.
The second delay was on its third-quarter results to 30 September 2017
due to its proposed rights issue of IDR600 billion and a proposed IDR850
billion rights issue by PT Lippo Cikarang Tbk, which were supposed to be
completed in the first quarter of 2018. However, there has been no announcement on progress of the rights issues which were underwritten by
PT Ciptadana Securities.
Lippo Karawaci has shared that the delay was due to Lippo Cikarang’s rights issue but has not announced a date by which it will file its results with the exchange.
Moody’s also understands from the company that it has not submitted the
certificate, as required under the indenture of its US dollar bonds, stating details and the computation of its fixed charge coverage ratio with respect to the four most recent quarters within 90 days after the close of its fiscal year-end.
While Lippo Karawaci can remedy the non-compliance by filing the certificate within the applicable cure period, Moody’s views this to limit the company’s financial flexibility. Lippo Karawaci’s US dollar bonds accounts for 79% of its total debt as of 30 September 2017.
“The review for downgrade also reflects our expectation of weaker liquidity at the holding company should the proposed rights issue is delayed or cancelled as Lippo Karawaci’s ability to sell projects at the holding company remains weak,” says Poh.
Moody’s expects holding company liquidity — namely consolidated cash flow excluding cash flow of listed companies (Siloam International Hospitals and Lippo Cikarang) but including intercompany cash flow such as dividends and asset-sale proceeds — to be weak over the next 12 months, owing to short-term debt of IDR1,336 billion.
Moody’s expects refinancing risk in 2018 to be mitigated by availability of its undrawn committed facilities. Furthermore, around half of its short-term debt is a $50 million syndicated loan that has an extendable maturity up to September 2019.
Assuming an extension of its $50 million loan, Lippo Karawaci will have $115 million of syndicated loan maturing in September 2019. Other than that, the company has a relatively long-dated debt maturity profile because $410 million of its US dollar bonds will come due only in April 2022.
Moody’s review will focus on (1) the timing at which Lippo Karawaci files
its 2017 audited financial statements, the resultant auditor opinion, and the operating and financial performance of the company; (2) the company’s ability to remedy the failure to fulfill its financial reporting obligation under the indentures of its US dollar bond; (3) its strategy to improve its operating and financial performance, particularly at the holding company level; and (4) final proceeds and timing of the rights issues and its implication for the liquidity at the holding company level.
If Moody’s assesses that Lippo Karawaci is unable to improve operating
performance and liquidity at the holding company level, its rating could
be downgrade by at least one notch.
Lippo Karawaci Tbk (P.T.) is one of the largest property developers in Indonesia, with a sizable land bank of around 1,364 hectares as of 30
September 2017. It owns and/or manages — either directly or via its real
estate investment trusts — 47 malls, 31 hospitals and nine hotels. Lippo
Karawaci owns a 31% stake in First REIT and a 30% stake in Lippo Malls
Indonesia Retail Trust.