Moody's cuts LMIRT outlook to negative on virus hit, rupiah weakness

MOODY'S Investors Service has changed its outlook on Lippo Malls Indonesia Retail Trust (LMIRT) to negative from stable.

At the same time, the credit rating agency affirmed the Ba3 corporate family rating of the mainboard-listed retail real estate investment trust (Reit).

It also affirmed the Ba3 backed senior unsecured rating on the bond issued by LMIRT Capital, a wholly-owned subsidiary of LMIRT. The bond is guaranteed by LMIRT's trustee.

The agency revised its outlook to negative as it expects LMIRT's credit metrics to weaken in 2020 because of the softer operating conditions caused by the novel coronavirus outbreak, and due to the depreciation of the rupiah against the Singapore dollar, said Jacintha Poh, a Moody's vice-president and senior credit officer, in a note on Wednesday night.

The Reit is closing its entire portfolio of 23 malls and seven retail spaces - except for essential services such as supermarkets, pharmacies and clinics - from April 1 for at least two weeks.

Moody's forecasts LMIRT's net-debt-to-Ebitda (earnings before interest, taxes, depreciation and amortisation) ratio this year to weaken to around 6.5 times from 5.2 times in 2019, and the Ebitda-to-interest-expense ratio to fall to around 2.0 times compared with 3.0 times last year.

This is based on the agency's assumption of a 15 per cent drop in 2020 revenue caused by the mall closures, weaker demand for retail space and the rupiah's depreciation against the Singapore dollar.

Nonetheless, Moody's believes LMIRT's liquidity will likely remain adequate over the next 12 months, assuming it will obtain the required funding before proceeding with the proposed acquisition of Lippo Mall Puri in Jakarta. LMIRT's manager had announced in March last year that it is looking to finance the 3.7 trillion rupiah (S$321.8 million) acquisition with a mix of debt and equity.

Cash on hand for LMIRT amounted to S$110 million as at Dec 31, 2019, while it has S$75 million of bonds maturing in June 2020.

The Reit's manager on Tuesday said that while it is difficult to ascertain the full financial impact of the crisis, it is in compliance with its debt obligations and has adequate financial reserves to fulfil its obligations "in the foreseeable future".

However, refinancing risk will escalate next year because LMIRT has S$175 million of syndicated term loans maturing in August 2021 and S$140 million of perpetual securities callable in September 2021, Moody's noted.

The Ba3 rating for the Reit continues to reflect its established presence in Indonesia with its portfolio of malls and retail spaces spread across 10 cities and targeting the country's growing middle to upper-middle income consumers.

"The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets," Moody's said.

"The combined credit effects of these developments are unprecedented.

"The retail property sector has been one of the sectors affected by the shock given its sensitivity to consumer demand and sentiment," it added.

Specifically for LMIRT, the expected weakening in the Reit's credit profile and its exposure to Indonesia have left it vulnerable to shifts in market sentiment in these operating conditions, the rating agency said. The Reit also remains vulnerable to continued spread of the coronavirus.

Indonesia has more than 1,600 confirmed Covid-19 cases and over 150 deaths as at Thursday morning.

Units of LMIRT fell 0.1 Singapore cent or 0.9 per cent to close at 11.6 cents on Wednesday.