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Announcement:

Moody's changes Lippo Karawaci's outlook to positive

Global Credit Research - 05 Apr 2012

Singapore, April 05, 2012 -- Moody's Investors Service has today changed the outlook for PT Lippo Karawaci Tbk's ("LK") B1 corporate family rating to positive from stable. At the same time, Moody's has affirmed LK's B1 corporate family rating and senior unsecured debt rating.

RATINGS RATIONALE

"The change in outlook reflects LK's improved credit profile, against the backdrop of robust growth in the Indonesian property sector over the past year," says Alvin Tan, a Moody's Analyst.

"For FY2011, the company's adjusted EBIT/Interest coverage improved to 2.4x from below 1.4x in FY2010. It also maintained a strong adjusted debt/capitalization ratio of 36.6% and debt/EBITDA of 3.2x, which positions LK strongly within the B1 rating category," adds Tan, who is also Moody's lead analyst for LK.

As a result of strong property sales, LK's operating cash flows also turned positive in 2011, from a negative position in the previous year. However, Moody's expects the company's free cash flow to remain tight over the next 2-3 years, given its aggressive expansion strategy and the need to accelerate land acquisition to keep up with the depleting land bank from its faster growth.

"The change in outlook further reflects the strong growth in recurring income from the retail malls, healthcare, hospitality and infrastructure, as well as property and portfolio management businesses, which contributed to approximately 51% of LK's FY2011 revenue," says Tan.

"Although the company's planned expansion on investment properties entails development and execution risks, its existing healthcare business should remain resilient, supported by rising demand for quality hospital and clinical services, and a shortage of supply in Indonesia. In addition, a growing middle class in Indonesia, which enhances consumer spending, also supports retail demand," he adds.

On the other hand, Moody's expects LK's operating cash flow and its associated credit metrics to remain volatile over the next 2-3 years, due to the heavy requirements for its planned property developments and expansion. In addition, the company's shareholders had also approved a share buyback plan to acquire shares in LK in November 2011, at an aggregate value of Rp600 billion, with the buyback period valid for 18 months.

However, LK had consistently held adequate cash holdings, and maintained a well-balanced debt maturity profile. As of 31 December 2011, the company had cash and cash equivalents of Rp2.17 trillion as compared to maturing debt of Rp145 billion over the next four quarters. Furthermore, its USD396 million unsecured notes are due only in April 2015.

The ratings could be upgraded if LK maintains financial discipline in the pursuit of its growth strategy, while continuing to be well-supported by stable recurring income from its retail malls, healthcare, hospitality, as well as property and portfolio management businesses.

A further track record of prudent investment and strategy decisions over the coming 12 months could see LK's ratings upgraded to Ba3. An upgrade would also be supported by a sustained strong sales performance and improved cash flow generation, as well as a further strengthening of recurring income. Credit metrics that will support an upgrade include EBIT/interest coverage above 3.0-3.5x and adjusted leverage below 40% on a sustained basis.

On the other hand, the ratings could return to stable if LK's financial and liquidity profiles weaken due to 1) the company failing to execute its business plans; 2) a deterioration in the property market, leading to protracted weakness in its operations and credit profile; and 3) a material depreciation in the Rupiah, and which increases the company's debt-servicing obligations.

The principal methodology used in rating PT Lippo Karawaci Tbk was the Global Homebuilding Industry Methodology published in March 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

PT Lippo Karawaci Tbk is one of the largest property developers in Indonesia, with a sizable land bank of around 1,489 ha as of December 31, 2011. Since 2004, the company has diversified into the healthcare and hospitality businesses and infrastructure development. Its recurring income continues to grow, comprising around 50% of LK's total revenue over the last three years.

REGULATORY DISCLOSURES

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Alvin Tan
Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Philipp L. Lotter
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Moody's changes Lippo Karawaci's outlook to positive
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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