Singapore, September 19, 2018 -- Moody's Investors Service has downgraded the corporate family rating of
Lippo Karawaci Tbk (P.T.) to B3 from B2.
Moody's has also downgraded the backed senior unsecured rating of
the bonds issued by Theta Capital Pte. Ltd., a wholly-owned
subsidiary of Lippo Karawaci, to B3 from B2. The bonds are
guaranteed by Lippo Karawaci and some of its subsidiaries.
The rating outlook is negative.
RATINGS RATIONALE
"The downgrade reflects our expectation that Lippo Karawaci's
operating cash flows at the holding company level will weaken further
over the next 12-18 months, such that the company's
ability to service its debt servicing obligations will be subject to its
ability to execute asset sales," says Jacintha Poh,
a Moody's Vice President and Senior Analyst.
As part of its asset sales plan, on 18 September 2018, Lippo
Karawaci announced the sale of (1) its 100%-stake in Bowsprit
Capital Corporation Limited, which in turn owns 7% of First
REIT, to OUE Limited and OUE Lippo Healthcare Limited for SGD99
million; and (2) its 10.6%-stake in First REIT
to an indirect wholly-owned subsidiary of OUE Lippo Healthcare
Limited for SGD103 million.
"Lippo Karawaci will receive a liquidity boost of SGD202 million
(IDR2.2 trillion) in November 2018, if the sale is completed.
However, these sales do not address the fundamental weakening of
Lippo Karawaci's operating cash flows," says Poh,
who is Moody's Lead Analyst for Lippo Karawaci.
"We also estimate that the added liquidity will only be sufficient
to cover the company's cash needs until September 2019 given the
company cash burn rate of around IDR1.1 trillion in 2018 and around
IDR1.3 trillion in 2019," adds Poh.
Moody's expects Lippo Karawaci to continue generating negative operating
cash flows at the holding company level -- that is,
total consolidated cash flows excluding the cash flows of the key listed
subsidiaries, Siloam International Hospitals Tbk (P.T.)
and Lippo Cikarang Tbk (P.T.), but including any intercompany
cash flows (dividends and proceeds from asset sales) --
over the next 12-18 months.
Moody's expectation of negative operating cash flows at the holding
company level is driven by (1) lackluster marketing sales of inventories;
(2) a decline in asset management fees from the sale of Bowsprit Capital
Corporation, manager of First REIT Limited; (3) a decline in
dividend cash flows from its Singapore-listed real estate investment
trusts owing to its reduced stake in First REIT and weaker dividends per
unit from Lippo Malls Indonesia Retail Trust; as well as (4) higher
interest expense on its US dollar debt as a result of the weaker Indonesian
rupiah against the US dollar and higher cost of debt.
Further, Lippo Karawaci remains exposed to refinancing risk because
there is insufficient liquidity to address its total outstanding debt
maturities in 2018 and 2019.
As of 31 March 2018 -- and proforma for the partial refinancing of
its syndicated loan with UBS AG and Deutsche Bank -- Lippo
Karawaci had around IDR1.3 trillion of debt coming due in 2018
and 2019. This includes (1) IDR590 billion of bank loans with various
local banks maturing in 2018 and 2019; and (2) the remaining $50
million a syndicated loan with UBS AG and Deutsche Bank that was originally
due September 2018, but for which Lippo Karawaci has extended the
maturity to April 2019.
The negative outlook reflects uncertainty around the execution of Lippo
Karawaci's asset sales, which could result in a further deterioration
of the holding company's liquidity over the next 12-18 months.
Given the negative outlook, Lippo Karawaci's ratings are unlikely
to be upgraded over the next 12-18 months. The outlook is
unlikely to return to stable as long as the company's ability to
service its debt is contingent upon its ability to execute assets sales.
Improvement in company's core property development business with
successful project launches that results in higher operating cash flows
at the holding company level could stem the downward rating pressure.
On the other hand, the ratings could be further downgraded if operating
cash flow continues to deteriorate at the holding company level and result
in further weakening of Lippo Karawaci's liquidity. This
situation could arise if the company fails to execute further asset sales
of at least IDR2.0 trillion over the next six months.
Lippo Karawaci's senior unsecured bond rating could also be lowered if
debt is incurred at its subsidiaries.
The principal methodology used in these ratings was Homebuilding And Property
Development Industry published in January 2018. Please see the
Rating Methodologies page on www.moodys.com for a copy of
this methodology.
Lippo Karawaci Tbk (P.T.) is one of the largest listed property
company in Indonesia, with a sizable land bank of around 1,327
hectares as of 31 March 2018. It owns and/or manages — either
directly or via its real estate investment trusts — 48 malls,
33 hospitals and nine hotels. Lippo Karawaci also owns a 28%
stake in First REIT and a 30% stake in Lippo Malls Indonesia Retail
Trust.
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 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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
Vice President - Senior 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
Laura Acres
MD - Corporate Finance
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