JAKARTA (TheInsiderStories) – Moody’s Investors Service has assigned a B1 senior unsecured rating to the proposed senior notes to be issued by LMIRT Capital Pte. Ltd., a wholly-owned subsidiary of Lippo Malls Indonesia Retail Trust (LMIRT, B1 negative). The proposed notes are guaranteed by Perpetual (Asia) Ltd., in its capacity as trustee of LMIRT.
“The proposed USD bond issuance will reduce refinancing risk and lengthen LMIRT’ debt maturity profile,” says Junling Tan, a Moody’s Analyst in the latest report.
The rating on the proposed notes is aligned with LMIRT’ B1 corporate family rating, as the bond is not exposed to legal or structural subordination risk. As of Sept. 30, 2020, 100 percent of LMIRT’ total debt was unsecured, including the debt issued by LMIRT Capital.
LMIRT’ B1 rating incorporates its degree of independence as a publicly listed and regulated trust in Singapore (Aaa stable) despite becoming a subsidiary of its sponsor, PT Lippo Karawaci Tbk (IDX: LPKR) (B3 stable) following the rights issuance. Given the linkages between LMIRT and the parent, the rating will remain constrained at no more than two notches above that the parent, reflects uncertainty surrounding the impact from the COVID-19-related disruptions on the earnings and performance of their properties.
A delay in the operating environment recovery leading to weaker performance of LMIRT‘ properties, could result in a breach in financial covenants under the trust’s bank loans from the fourth quarter of 2021, which will weaken the trust’ liquidity profile.
Moody’s estimates LMIRT’ 2020 revenue to have declined 46 percent from the previous year due to temporary mall closures and weaker demand for retail space. Based on the agency’ assumption of a gradual recovery in operating conditions, improving occupancy rates in 2021 and the issuance of the proposed notes, adjusted net debt and interest expense should strengthen to around 7.5x and 1.7x, respectively, in 2021. LMIRT’ liquidity is adequate.
As of end September 2020, the trust had cash and cash equivalents of S$123 million (US$92.48 million) and $75 million in undrawn committed credit facilities, compared to utilized revolving credit facilities of around S$44 million and a syndicated term loan of S$175 million maturing in August 2021. Moody’s expects LMIRT will rely on external funding should the trust decide to redeem its S$140 million perpetual securities callable in September 2021.
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