On Nov 20, Fitch Ratings announced it has downgraded PT Lippo Karawaci Tbk's (LPKR) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to 'CCC+' from 'B-'. Fitch has also downgraded the ratings on LPKR's US dollar notes due January 2025 and October 2026 to 'CCC+' from 'B-' with a Recovery Rating of 'RR4'.
Fitch Ratings Indonesia has simultaneously downgraded LPKR's National Long-Term Rating to 'B+(idn)' from 'BBB-(idn)'. The Outlook is Negative.
The rating action reflects heightened refinancing risk on LPKR's US$237 million unsecured notes due on 22 January 2025. This follows LPKR's confirmation that it will prioritise the refinancing efforts of its Singapore-based affiliate Lippo Malls Indonesian Retail Trust (LMIRT, CCC-) for US$250 million unsecured notes due in June 2024 by introducing the trust to LPKR's own banks.
“We believe LPKR's and LMIRT's ability to tap cross-border US dollar bonds will remain weak amid soft investor sentiment for high-yield debt, which will leave both the company and the trust reliant on the risk appetite of Indonesian banks,” Fitch Ratings says.
However, LPKR’s focus on helping LMIRT repay its June 2024 notes using banks with existing relationships will complicate and delay its own refinancing, Fitch reasons. This includes the risk that additional banks may have to be introduced to take on the refinancing of LPKR's notes due in January 2025, which when combined with LMIRT's June 2024 notes have an aggregate value of around IDR7.5 trillion at today's exchange rate.
In its 3QFY2023 results update, LMIRT’s manager said it had announced on earlier this year on March 20, May 31, and September 18, that LMIRT had ceased distributions to the holders of the $140.0 million and $120.0 million perpetual securities, to conserve cash. As a result of this discretion, the dividend stopper provisions under the perpetual securities are applicable. No declaration or payment of dividends, distributions or other payment can be made on the units, $120.0 million or $140.0 million perpetual securities, unless and until certain conditions are made.
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LMIRT’s manager says it will continue to explore options to address its other maturing debt obligations. Pending a clear resolution on its other debt obligations maturing in 2024, any distributions to both unitholders and holders of the perpetual securities will likely remain curtailed, it adds.
