IFR Asia – May 05, 2018

Lippo Karawaci faces cash crunch

„ Bonds Asset sales likely after Indonesian developer breaches bond covenants

BY DANIEL STANTON

Indonesian property developer

LIPPO KARAWACI faces a cash

crunch after breaching a

covenant in its dollar bonds,

and might need to turn to one

of its Singapore-listed REIT

holdings to help raise funds.

In its full-year 2017

accounts, the developer’s

fixed-charge coverage ratio

dropped below 2x, which

under the indenture of its US

dollar bonds means it cannot

incur further indebtedness to

cover its net operating cash

outflow, including interest

payments.

“Over the next 12-

months, without the

successful execution of assets

sales, we expect net operating

cash outflow at the holding

company level to be around

Rp800bn (US$58m), which

has to be met by cash or

further sales of short-term

investments,” wrote Jacintha

Poh, senior analyst at Moody’s.

Moody’s in April cut Lippo

Karawaci’s rating, and that on

its bonds issued through Theta

Capital, to B2 from B1, while

S&P cut its respective ratings

to B– from B. Fitch joined the

trend on Thursday, cutting

Lippo to B from B+.

S&P warned that it could

downgrade Lippo Karawaci

to CCC if it did not complete

asset sales within the next six

months.

Fitch said its negative watch

reflected the company’s weak

liquidy and execution risks

around its asset sales plan.

Following the Moody’s

and S&P downgrades,

Lippo Karawaci said it was

“committed to reinforce

the company’s liquidity and

strengthen the balance sheet

to regain the former rating

and stable outlook”.

Lippo Karawaci owns a 30%

stake in LIPPO MALLS INDONESIA

RETAIL TRUST and a 31% stake in

FIRST REIT, which is also focused

on Indonesian property. OCBC

wrote in a research note that

trade receivables had been

growing at the two REITs as

Lippo Karawaci and related

entities have been delaying

payments.

REIT SALES

The developer has been

considering selling its Jakarta-

based Puri Mall, valued at

Rp5trn–Rp6trn, to LMIRT, but

S&P warned that it was too

large for the REIT to absorb.

The asset would represent

30% of the REIT’s book

value and 60% of its market

capitalisation.

Fitch said it believed LMIRT

would have to issue new

equity to fund the acquisition.

That may not be popular

with minority shareholders:

the Singapore-listed units

have fallen 13% over the past

month, hitting a two-year low

of S$0.32 on April 30.

S&P said it expected LMIRT

to refinance its 2018 maturities

before raising new funds for

acquisitions.

LMIRT has S$270m

(US$204m) of Singapore dollar-

denominated debt falling due

this year: a S$80m revolving

credit facility, a S$90m term

loan due on December 15 and

a S$100m 4.5% bond maturing

on November 23.

A Singapore DCM banker

said he did not expect LMIRT

to have any trouble meeting its

obligations.

Raising new bonds might

be more difficult, as the REIT

no longer has a public credit

rating. Moody’s withdrew its

Ba1 rating with a negative

outlook for business reasons

Indian property firms raise equity

„ Equities Real estate companies capitalise on sector recovery to cut debt

BY S ANURADHA

Three Indian real estate

companies are preparing to tap

the equity capital markets for

up to a combined US$2.7bn on

hopes that the worst is over for

the sector.

Demand, particularly for

residential property, has been

sluggish in India since 2016

after the federal government

implemented demonetisation,

introduced the goods and

services tax and set up

the Real Estate Regulatory

Authority.

A severe need for capital is

now forcing highly indebted

real estate companies to tap the

capital markets.

LODHA DEVELOPERS, one of

India’s largest realty firms, last

week filed for a US$700m–

$1bn IPO. Meanwhile, DLF is

working towards launching

a qualified institutional

placement of up to Rs45bn

(US$676m) in the second half,

and EMBASSY OFFICE PARKS real

estate investment trust plans

to file for a US$500m–$1bn IPO

in June.

Balaji Raghavan, head of the

real estate practice at financial

services provider IIFL Group,

said the country’s property

sector has bottomed out,

although it is too early to talk

of an all-round recovery.

“Demonetisation, GST and

RERA have weighed on the

industry as many small players

were not able to cope with

them,” he said.

The commercial property

sector has seen some

improvement because of

low supply, while the low to

mid-end residential sector

continues to see demand,

Raghavan said.

RARE ISSUANCES

The real estate sector has been

an infrequent issuer in recent

years. Prestige Estates was the

last realty firm to complete an

IPO in 2010.

Qualified institutional

placements have also been rare

and sold at hefty discounts.

Last year Sunteck Realty

raised Rs5bn through a QIP

priced at a 11% discount to

the pre-deal close and Brigade

Enterprises raised the same

amount at a 4.9% discount.

These discounts were steep

as many companies from the

financial sector sold shares at

0%–2% discounts last year.

Bankers away from the DLF

and Lodha deals said both

transactions have to be priced

at a decent discount to the

industry’s EV/Ebitda range of

10x–18x to attract investors.

Some bankers think Lodha

will be able to raise only

around US$750m from its IPO.

“US$1bn is aspirational not

achievable,” an ECM banker

said.

This will be Lodha’s second

attempt at listing after a failed

attempt in 2010 due to weak

market conditions.

Lodha is selling Rs37.5bn

new shares in the IPO, and the

Mangal Prabhat Lodha family is

offering 18m secondary shares.

CLSA, JM Financial, Kotak and

Morgan Stanley are joint global

coordinators and bookrunners

with BOB Capital, Edelweiss,

HDFC, ICICI Securities, IIFL, UBS

and Yes Securities.

Meanwhile, the DLF QIP is

designed to maintain the public

shareholding at 25% and reduce

debt.

The group has taken several

steps to reduce debt. Last year

Singapore’s GIC agreed to buy

News