LIPPO Malls Indonesia Retail Trust (LMIRT) : D5IU 0% reported on Monday (Feb 13) that its distributions may be negatively affected by Moody’s Investors Service’s recent downgrade of the trust’s corporate family rating as well as its bonds. 

To recap, the credit rating agency on Friday announced it had downgraded LMIRT’s corporate family rating from B3 to Caa1. 

The backed senior unsecured rating for bonds issued by LMIRT’s wholly-owned subsidiary, LMIRT Capital, was also downgraded from B3 to Caa1. The bonds are guaranteed by the trustee of LMIRT.

Moody’s outlook on all its ratings remains negative. 

In response, the trust’s manager said LMIRT continues to explore options and measures to maintain a sustainable capital structure and to reduce the aggregate leverage of the trust.

These measures – on top of the downgrade of credit rating by Moody’s – could negatively affect the trust’s distributions to holders of its units and perpetual securities, said the manager. 

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It also highlighted that LMIRT remains in compliance with its financial covenants and the aggregate leverage limit as prescribed under the property funds appendix.

Moody’s vice-president and senior analyst Rachel Chua said the agency’s downgrade is reflective of the trust’s “unsustainable capital structure and weak financial management”. 

“LMIRT’s weak liquidity and high refinancing needs with looming debt matures are a pertinent credit risk,” Chua said in the Feb 10 note.  

Moody’s downgrade of LMIRT’s ratings comes amid concerns over the trust’s lack of concrete refinancing plans, particularly for bank loans and US dollar bonds due within the next 18 months, 

It also flagged the trust’s weak liquidity, limited access to banking lines, and the risk of declining asset value of its Indonesian properties in terms of Singapore dollars. 

Chua said the trust’s interest coverage is expected to remain weak through 2023 and 2024, and is likely to worsen with rising interest rates and new bank loans. 

Units of the trust closed 8.8 per cent or S$0.003 lower at S$0.031 on Monday.