Fitch Ratings Singapore has downgraded Lippo Malls Indonesia Retail Trust (LMIRT)’s D5IU long-term issuer default ratings to ‘CCC’ from ‘CCC+’.
LMIRT’s senior unsecured notes due 2024 and 2026, issued by its wholly owned subsidiary, LMIRT Capital Pte Ltd, have also been downgraded to ‘CCC’ from ‘CCC+’ with a recovery rating remaining at ‘RR4’.
“The downgrade reflects the increased likelihood that LMIRT will be unable to refinance its $547 million debt maturing over the next 18 months. This follows the trust's announcement that it has appointed a financial advisor to explore how to maintain a sustainable capital structure and reduce leverage,” say Fitch analysts Elise Nguyen, Shiv Kapoor and Hasira De Silva.
“We believe LMIRT may be able to access secured debt from banks to refinance its term loans and US-dollar notes. If the trust is unsuccessful in transitioning to a secured-capital structure, it could pursue a debt restructuring, which may include an extension in the maturity of its US$250 million ($338.3 million) notes due June 2024,” they add.
The outlook on all ratings for the trust remains negative.
In addition, Fitch sees several downsides to LMIRT. This includes insufficient internal liquidity to meet its “significant upcoming debt maturities”, thin fixed-charge coverage, as well as limited regulatory leverage headroom. LMIRT’s leverage ratio rose to 44.6% as at end-2022, just 0.4% away from the regulatory ceiling of 45%.
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The report also sees the trust experiencing high foreign exchange (forex) risk with LMIRT’s debt denominated in US dollars (USD) and Singapore dollars (SGD) compared to its revenue which is generated in Indonesian rupiah (IDR).
“Further rupiah depreciation will reduce the value of cash flow and assets in Singapore-dollar terms, pressuring interest coverage and the loan/value ratio. LMIRT has hedged around 60% of the notional value of its net rupiah cash flow for 2023 using options contracts, but this only provides partial protection against a further decline in the exchange rate,” the analysts write.
To this end, the analysts forecast LMIRT’s net property income (NPI) to reach $137 million in FY2023, up 4.6% y-o-y, supported by a gradual improvement in the occupancy rate to 84%.
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“We expect occupancy to stabilise, but remain below pre Covid-19 pandemic levels of over 90% for the next two years. This is due to a post-pandemic structural weakening in occupancy at several malls and redevelopment activities at two malls. Improving rents from fewer rent rebates to tenants may be partly offset by currency risk,” the analysts add.
Units in LMIRT closed flat at 2.6 cents on March 8.
