Lippo Karawaci a star performer in Asian junk-dollar bonds

Hong Kong

A BUILDER controlled by Indonesia's billionaire Riady family has rebounded from the depths of distress to become one of the best performers in the Asia junk-dollar bond market.

The turnaround by Lippo Karawaci, among Indonesia's biggest developers, comes after moves to raise cash to pay down debt, and dovetails with two broader themes.

Sentiment toward developers is improving as Indonesian president Joko Widodo is on course to be re-elected with a comfortable majority, fuelling expectations that he will push ahead with an ambitious infrastructure programme.

Meanwhile, a rally in emerging market assets and a stabilised rupiah are also helping the country's riskier borrowers refinance their debt.

Lippo Karawaci said in March that it will raise US$730 million through a rights issue of shares that has attracted high-profile investors such as former Goldman Sachs Group Inc investment banker Raymond Zage and Hong Kong's Chow Tai Fook.

The Indonesian company already improved its cash position in the first quarter by securing a portion of those funds, with the injection of US$280 million through an advanced subscription by its controlling shareholder.

The builder will raise another US$280 million by selling some healthcare assets and a shopping mall.

The company has also shaken up its management, with John Riady, grandson of group founder Mochtar Riady, taking the reins over from his father, who was probed last year.

"There is sufficient capital to address Lippo Karawaci's debt obligations, so it now comes down to its execution of projects and the company's ability to generate a healthy operating cash flow," said Dhiraj Bajaj, a Singapore-based money manager at Lombard Odier (Singapore) Ltd. His firm holds dollar bonds due 2022 and 2026.

Lippo Karawaci plans to deploy the cash raised from the funding exercise to delever its balance sheet and provide a liquidity buffer for all debt interest payments through the end of 2020.

It also plans to invest as much as US$200 million to develop Meikarta, its flagship US$18 billion township project near Jakarta, which has raised some concern.

Xavier Jean, analyst at S&P Global Ratings, said: "Given their willingness to continue investing heavily in their Meikarta development, it's unlikely they would generate enough operating cash flow to redeem their bonds and may therefore need to have willing creditors that accept terming maturities further out."

Lippo Karawaci's bonds due in 2022 and 2026 are the second and third best-performing junk dollar bonds in Asia outside Japan this year; they gained 24.6 cents and 22.7 cents in the period, according to Bloomberg-compiled data.

In an earnings announcement dated April 30, CEO Riady said that the company hopes to finalise its rights issue in the coming months and "more aggressively pay down bonds and bank loans while expediting the completion of existing projects."