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Rating Action:

Moody's assigns B1 rating to Lippo Malls Indonesia Retail Trust's proposed USD notes

28 Jan 2021

Singapore, January 28, 2021 -- 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) Limited, in its capacity as trustee of LMIRT.

The proceeds from the notes will be used to refinance existing borrowings of LMIRT and its subsidiaries and for general corporate and working capital purposes.

RATINGS RATIONALE

"The proposed USD bond issuance will reduce refinancing risk and lengthen LMIRT's debt maturity profile," says Junling Tan, a Moody's Analyst.

The rating on the proposed notes is aligned with LMIRT's B1 corporate family rating, as the bond is not exposed to legal or structural subordination risk. As of 30 September 2020, 100% of LMIRT's total debt was unsecured, including the debt issued by LMIRT Capital Pte. Ltd.

LMIRT's 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, Lippo Karawaci Tbk (P.T.) (B3 stable) following the rights issuance. However, given the linkages between LMIRT and Lippo Karawaci, LMIRT's rating will remain constrained at no more than two notches above that of Lippo Karawaci

LMIRT's negative outlook reflects uncertainty surrounding the impact from the coronavirus-related disruptions on the earnings and performance of LMIRT's properties. A delay in the operating environment recovery leading to weaker performance of LMIRT's 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's liquidity profile.

Moody's estimates LMIRT's 2020 revenue to have declined 46% from the previous year due to temporary mall closures and weaker demand for retail space. Consequently, Moody's expects LMIRT's adjusted net debt/EBITDA will weaken to around 10.7x in 2020 from 5.2x in 2019, and adjusted EBITDA/interest expense to around 1.3x from 3.0x over the same period. Based on Moody's assumption of a gradual recovery in operating conditions, improving occupancy rates in 2021 and the issuance of the proposed notes, adjusted net debt/EBITDA and EBITDA/interest expense should strengthen to around 7.5x and 1.7x, respectively, in 2021.

LMIRT's liquidity is adequate. As of 30 September 2020, the trust had cash and cash equivalents of SGD123 million and USD75 million (SGD102 million) in undrawn committed credit facilities, compared to utilized revolving credit facilities of around SGD44 million and a syndicated term loan of SGD175 million maturing in August 2021. Moody's expects LMIRT will rely on external funding should the trust decide to redeem its SGD140 million perpetual securities callable in September 2021.

In terms of environmental, social and governance (ESG) factors, Moody's has taken into consideration the governance risk stemming from related-party transactions between LMIRT and the Lippo group of companies. This risk is partially mitigated by the regulatory oversight provided by the Monetary Authority of Singapore and exercised through the board, which mostly consists of independent directors. Furthermore, there is an alignment of interest between LMIRT and its sponsor, Lippo Karawaci, because the latter has around 58% stake in the trust.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Given the negative ratings outlook, an upgrade is unlikely over the next 12-18 months. Nonetheless, the outlook could return to stable if (1) improvements in the trust's operating performance strengthen its credit metrics, such that adjusted net debt/EBITDA falls below 7.0x-7.5x and adjusted EBITDA/interest expense rises above 2.0x on a sustained basis; or (2) the trust maintains good liquidity and a well-distributed debt maturity profile.

On the other hand, LMIRT's ratings could be downgraded if (1) the operating environment fails to recover or deteriorates further, leading to higher vacancy levels and declining operating cash flows or falling asset valuations; (2) the trust's credit metrics fails to improve, with adjusted net debt/EBITDA remaining above 7.5x or adjusted EBITDA/interest expense staying below 2.0x; (3) the trust fails to maintain adequate liquidity over the next 12 to 18 months; (4) the trust increases its exposure to the Lippo group of companies; or (5) the credit quality of the Lippo group of companies, including Lippo Karawaci, weakens. A downgrade of Lippo Karawaci's rating will also result in downgrade of LMIRT's rating.

The principal methodology used in this rating was REITs and Other Commercial Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Lippo Malls Indonesia Retail Trust (LMIRT) is a real estate investment trust and has been listed on the Singapore Stock Exchange since November 2007. At 30 September 2020, it had a portfolio of 21 retail malls and seven retail spaces across major cities in Indonesia, with a total appraised value of around SGD1.45 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Junling 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
Client Service: 852 3551 3077

Vikas Halan
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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