PT Lippo Karawaci 'CCC+' Rating Placed On CreditWatch Positive On Expected Improvement In Liquidity

  • We believe PT Lippo Karawaci Tbk.'s (Lippo's) proposed rights issue and asset sale amounting to US$1 billion will mitigate any liquidity risk until Dec. 31, 2020, help reduce debt, and fund business growth.
  • We believe Lippo's proposed tender offer is opportunistic because we do not believe the failure of the offer will result in a payment default.
  • On March 14, 2019, S&P Global Ratings placed its 'CCC+' long-term issuer credit rating on Lippo and the 'CCC+' long-term issue rating on the company's outstanding guaranteed senior unsecured notes on CreditWatch with positive implications.
  • We plan to resolve the CreditWatch upon completion of the rights issue, which could result in the rating being raised by a notch or two.
SINGAPORE (S&P Global Ratings) March 14, 2019--S&P Global Ratings today took 
the rating actions listed above. The CreditWatch placement reflects our view 
that the proposed rights issue of US$730 million will significantly improve 
the company's liquidity and help reduce debt. 

The proposed fund raising will help Lippo ensure it has adequate liquidity 
until Dec. 31, 2020. The company will use the funds to repay its US$50 million 
bank loan and US$75 million bond due by the middle of 2020. In addition, Lippo 
will keep aside US$315 million to fund all its remaining obligations, 
including interest payments for 2019 and 2020.

The proposed fund-raising plan will also help improve the financial position 
of the company by reducing debt and funding future growth in its property 
business. In addition to the US$125 million debt to be repaid, the company 
plans to use an additional US$150 million to repay debt. 

The US$150 million debt reduction is through a proposed tender offer for up to 
US$150 million for its outstanding senior unsecured bonds maturing in 2022 and 
2026. We believe the offer is opportunistic in nature and does not constitute 
a distressed exchange. This is because the bonds are not due for the next 
three to four years and Lippo will have adequate liquidity for at least the 
next two years. Therefore, the company will not face any financial distress 
even if the tender offer fails. 

Lippo's financial and liquidity position will be further bolstered by the 
planned sale of Puri Mall in the second half of this year. The company has 
entered into a conditional sales and purchase agreement with Lippo Malls 
Indonesia Retail Trust and we estimate that it would result in net inflow of 
US$200 million. 

The fund raising will aid Lippo in business continuity and growth. We believe 
that further investment to complete existing projects and the Meikarta 
township should provide future cash flows. Cash flows could also be augmented 
by the launch of Value Homes in Lippo Village by 2020. 

We expect to resolve the CreditWatch placement once Lippo completes the 
proposed rights issue because it will help reduce debt and ensure sufficient 
funds to cover rental and interest expenses to December 2020. When we resolve 
the CreditWatch, we will also review the impact of Lippo's proposed business 
plan on cash flows from its property business as well as its longer-term 
strategy and financial policy. We expect this to occur in the next 90 days. 
The CreditWatch resolution could result in the rating being raised by one or 
two notches.

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