Lippo Karawaci: S&P places CCC+ rating on examination with ‘positive implications’; Moody’s affirms B3 rating

STANDARD Poor’s (SP) could lift a rating on real estate developer PT Lippo Karawaci by “one or dual notches” on approaching alleviation in liquidity after a association completes a due rights issue, a rating organisation pronounced on Thursday.

SP placed a Riady family-backed company’s CCC+ long-term issuer credit rating on examination “with certain implications”. The credit rating and opinion are identical for Lippo Karawaci’s superb guaranteed comparison unsecured notes.

The company’s due rights emanate of US$730 million would “significantly improve” a company’s liquidity and assistance revoke debt, SP said. It will also safeguard there are adequate supports to cover let and seductiveness losses until Dec 2020. Lippo Karawaci is a unite for Singapore-listed First Reit and Lippo Malls Indonesia Retail Trust.

Moody’s Investors Service has also altered Lippo Karawaci’s opinion to “stable” from “negative”, on a behind of softened liquidity from a rights issue. It endorsed a company’s B3 corporate family rating, that also relates to senior-unsecured holds released by Lippo Karawaci unconditionally owned auxiliary Theta Capital. The holds are guaranteed by Lippo Karawaci and some of a subsidiaries.

SP pronounced that it would be reviewing, within a subsequent 90 days, a impact of Lippo Karawaci’s due business devise and long-term devise and financial policy.

SP pronounced a company’s US$150 million debt rebate devise was “opportunistic” as it does not believe a disaster of a offer will outcome in a remuneration default. Done by a due proposal offer for a superb comparison unsecured bonds, SP combined that it does not consecrate a unsettled exchange.

“This is given a holds are not due for a subsequent 3 to 4 years and Lippo will have adequate liquidity for during slightest a subsequent dual years. Therefore, a association will not face any financial trouble even if a proposal offer fails,” it added.

This is serve upheld by a company’s designed sale of Lippo Mall Puri in a second half of a year, that will accelerate a financial and liquidity, formulating an guess net influx of US$200 million, SP said. Added investment into existent projects and a Meikarta municipality would also yield destiny money flows, that could also be softened by a launch of Value Homes in Lippo Village by 2020.

Moody’s pronounced Lippo Karawaci’s B3 corporate family rating reflects a faith on item sales and outmost funding, stemming from “weakness in a core skill expansion business”. This is given a association had not launched a new plan given 2016 during a holding association level.

“Lippo Karawaci’s ratings are doubtful to be upgraded as prolonged as a company’s ability to use a debt is fortuitous on a ability to govern resources sales,” a matter said. Positive momentum, however, could build if a association improves a core skill expansion business, as successful plan launches outcome in aloft handling money flows.

That being said, Moody’s ratings could still be downgraded if handling money upsurge deteriorates during a holding association level, and if there are signs of money leaking from Lippo Karawaci to account dependent companies. Examples embody inter-company loans, assertive money dividends, or investments in affiliates. The company’s comparison unsecured bond rating could also face hillside if a subsidiaries catch debt.

Jacintha Poh, a Moody’s vice-president and comparison credit officer, said: “The underwritten rights emanate demonstrates a clever joining from a Riady family to support Lippo Karawaci’s bid to revoke debt and finish existent projects underneath construction.” 

The rating organisation combined that risk surrounding Lippo Karawaci will be lightened as there would be supports set aside to repay debts sappy in 2019 and 2020.

As for investment into existent pivotal projects, Moody’s pronounced it does not design these projects to minister poignant money flows until 2020 as sales will “remain lacklustre” in 2019 from diseased marketplace sentiment. Assuming there are no new plan launches, Lippo Karawaci is approaching to beget disastrous handling money flows of around 3.5 trillion rupiah (S$331.7 million) in 2019 and around 3 trillion rupiah in 2020 during a holding association level, that can be met from deduction of a rights emanate and item divestments.

Moody’s is awaiting handling money flows to “remain negative” over a subsequent 3 to 5 years as a company’s Meikarta plan is still in a expansion phase. The plan has also been deemed “credit negative” as it boundary a holding company’s ability to entrance supports in a entirety from a prejudiced tenure of a project.

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