Singapore, May 02, 2013 -- Moody's Investors Service has upgraded the corporate family rating and
senior unsecured debt ratings of PT Lippo Karawaci Tbk (Lippo) to Ba3
from B1.
The senior unsecured bonds are issued by Sigma Capital Pte Ltd and Theta
Capital Pte Ltd, both wholly owned subsidiaries of Lippo.
The bonds are guaranteed by Lippo and some of its subsidiaries.
The ratings outlook is stable.
RATINGS RATIONALE
"The upgrade of Lippo's ratings reflects the company's
track record over recent years of strong marketing sales from its residential
and urban development segments, underpinned by the strength and
resilience of Indonesia's property market," says Jacintha
Poh, a Moody's Analyst.
"This has been further evidenced by a strong set of results for
the 2012 financial year, which has seen credit metrics strengthen
to levels consistent with a Ba3 rating", adds Poh, also
Moody's Lead Analyst for Lippo.
Moody's notes that Lippo's revenue for 2012 increased by 47%
year-on-year to IDR6.1 trillion and its marketing
sales increased by 47% to IDR4.7 trillion.
"The upgrade also reflects Lippo's financial discipline as
the company pursues an ambitious growth strategy to expand its property
portfolio." says Poh.
Lippo's adjusted EBITDA/interest coverage increased to 4.4x
in FY2012 from 2.6x in FY2008, while its adjusted debt/EBITDA
declined to 3.2x from 3.8x.
"Moreover, its diversified business profile and significant
sources of recurring income mitigate against development risks.
Lippo's recurring income has contributed between 40%-50%
of its total EBITDA over the last three years and provides stability against
the higher development risks it faces in its residential and urban development
segments," says Poh.
"Lippo has also successfully extended its debt maturity profile
and bolstered its liquidity position, with bond issuances at attractive
interest rates in FY2012, buffering the company against the short-term
volatility of its planned property developments," adds Poh.
In May and October last year, the company issued $250 million
in senior unsecured bonds that mature in 2019, and in November,
it issued $273.3 million in senior unsecured bonds that
mature in 2020. A further $130 million of the bond due in
2020 was issued in January this year.
At the same time, the company fully repaid its senior unsecured
bond due in 2015 at the end of April this year. The coupon rates
for the 2019 and 2020 bonds were 7% and 6.125% respectively,
comparing favorably with the 9% coupon rate on its bond that was
due in 2015.
While Moody's expects Lippo's debt and interest expenses to
increase in FY2013 as a result of the company's debt issuances last
year, Moody's also believes its recurring income will continue
to improve.
In addition, Moody's expects Lippo's EBITDA/interest
and debt/EBITDA to stay at approximately 3.5x-4.5x
and 3.0x-3.5x respectively for FY2013.
Moody's also points out that Lippo has consistently held adequate
cash holdings to offset business volatility and to support its expansion
needs. As at 31 December 2012, the company had cash and cash
equivalents of IDR3.3 trillion ($345 million).
"However, whether or not Lippo can grow its recurring income hinges
on the success of its asset-light strategy, which ultimately
depends on whether its two related REITs, First REIT (unrated) and
Lippo Malls Indonesia Retail Trust (LMIRT, unrated), can acquire
its completed hospital and retail developments," says Poh.
"While Lippo's sale of two retail malls, two hospitals
and one hotel to its related REITs in FY2012 indicates that its asset
light strategy is sustainable, the gearing ratios of both REITs
are set to increase, and thus Lippo's strategy is dependent
on the REITs' ability to attract financing," adds Poh.
As Lippo intends to construct 14 hospitals and 7 retail malls over the
medium term, Moody's expects that its capex it will incorporate
some level of debt funding, which may result in moderate deterioration
of its gearing and leverage ratios.
As at 31 December 2012, First REIT's gearing ratio was at
27.1% and LMIRT's was at 24.5%.
Under the regulations of the Singapore Stock Exchange, the gearing
ratios of unrated S-REITs are not allowed to exceed 35%.
The stable outlook on the ratings reflects Moody's expectation that
Lippo will maintain financial discipline while pursuing its growth strategy.
Lippo's ratings are unlikely to be upgraded in the next 12-18
months, as it embarks on its expansion plans. However,
Moody's will consider upgrading the ratings if Lippo: 1) continues
to display financial discipline and improve its credit metrics while pursuing
growth, 2) strengthens the recurring income from its retail malls,
healthcare, hospitality and property segments, as well as
its portfolio management business, 3) achieves sustained sales performance
and generates improved cash flows that improve its liquidity position,
and 4) can show that its asset light strategy is sustainable.
Specific credit metrics that Moody's considers indicative of an
upgrade include: 1) recurring EBITDA/interest coverage above 2.0x-2.5x,
2) EBITDA/interest coverage above 4.0x-4.5x,
and 3) adjusted leverage below 40%-45% on a sustained
basis.
However, downward pressure could emerge if Lippo's financial
and liquidity profile weakens due to: 1) the company failing to
execute its business plans, 2) a deterioration in the property market,
resulting in protracted weakness in Lippo's operations and credit
profile, and 3) a material depreciation in the rupiah, which
in turn increases the company's debt-servicing obligations.
Indicators that Moody's would consider for a downgrade include:
1) recurring EBITDA/interest coverage below 1.0x-1.5x,
2) EBITDA/interest coverage below 2.5x-3.0x,
and 3) adjusted leverage above 45%-50% on a sustained
basis.
The principal methodology used in these ratings was 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 1,369 ha as of 31 March 2013.
Since 2004, the company has diversified into the healthcare and
hospitality businesses, as well as infrastructure development.
Its recurring income continues to grow, comprising around half its
total revenue over the last three years.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jacintha Poh
Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
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Philipp L. Lotter
MD - Corporate Finance
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
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Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
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Moody's upgrades Lippo Karawaci to Ba3; outlook stable
