Moody's puts LMIRT's ratings on review for downgrade

MOODY'S Investors Service has placed on review for downgrade the B1 corporate family rating of Lippo Malls Indonesia Retail Trust (LMIRT), the real estate investment trust's (Reit) manager said on Thursday.

The credit rating agency has done the same for the B1 rating on the backed senior unsecured bond issued by LMIRT Capital, a wholly-owned subsidiary of the Singapore-listed Indonesian retail Reit.

Moody's changed its outlook on all the ratings to rating under review, from a negative outlook previously.

Its review will focus on three areas, including the funding structure of the Reit's proposed acquisition of Lippo Mall Puri from Mandiri Cipta Gemilang, which is wholly owned by LMIRT's sponsor, Lippo Karawaci.

The Reit manager had said it plans to finance the estimated acquisition cost of S$391 million through a combination of debt financing of up to S$120 million - comprising a bank debt and a S$40 million loan facility from the mall's seller Mandiri Cipta Gemilang - as well as proceeds from a S$280 million rights issue.

Moody's will also look into the extent and impact of linkages between LMIRT and the sponsor after the acquisition, due to the sponsor's weaker credit profile, which is rated B3 Stable by the agency.

This is seeing as Lippo Karawaci will apply for all the excess rights units not taken up by unitholders, which could in turn lead to the sponsor shareholding in LMIRT increasing significantly, Moody's said.

In addition, the review will focus on the progress on the Reit's ability to refinance its debt coming due in August 2021 and to obtain any waivers for any potential breaches of financial covenants on its bank loans due to weakening earnings caused by the coronavirus pandemic.

Moody's said it expects to conclude the review within 60-90 days.

Meanwhile, S&P Global Ratings on Thursday affirmed its B- long-term issuer credit rating on Lippo Karawaci and the B- long-term issue rating on the Indonesian property developer's guaranteed senior unsecured notes.

S&P maintained its negative outlook on Lippo Karawaci. This reflects the limited visibility on its cash flow sustainability after it sells the mall, given the large and recurring interest and rental charges, the credit rating agency said.

"The completion of the Lippo Mall Puri sale will only provide temporary relief for Lippo Karawaci's liquidity," S&P wrote.

The LMIRT sponsor is expected to realise lower net cash proceeds from the pending deal, due to the reduced valuation and potential vendor financing, S&P noted.

On Monday, LMIRT's manager announced that the deal price for the strata title units of the mall had been lowered to 3.5 trillion rupiah (S$330.2 million) instead of the 3.7 trillion rupiah proposed initially.

This followed a revaluation of the property to account for the impact of the Covid-19 outbreak, with the valuation cut by 200 billion rupiah.

S&P on Thursday said it now estimates the LMIRT sponsor to see net cash inflow from the sale - after vendor financing - of about one to two trillion rupiah, below the agency's earlier expectation of two to 2.5 trillion rupiah.

This reduction is due to the revised valuation, as well as potential vendor financing by Lippo Karawaci which will result in cash collection for a portion of the proceeds being deferred by 12-18 months.

The sponsor's net cash inflow from the sale is made even more uncertain because of the variability of its subscription portion under LMIRT's rights issue, S&P noted.

Lippo Karawaci's reliance on asset monetisation to support liquidity could continue to strain the sustainability of its capital structure, according to the agency.

Lippo Mall Puri is located in the Puri Indah central business district. It has 333 tenants, including international brands such as Adidas, Best Denki, H&M, Marks & Spencer, Uniqlo and Zara.

The mall reopened in June 2020 following a temporary closure from April as part of Indonesia's efforts to curb the spread of Covid-19. LMIRT's manager on Monday said the mall has seen a gradual improvement in shopper traffic to about 45 per cent of pre-outbreak traffic.

Mainboard-listed LMIRT units fell 0.3 Singapore cent or 2.6 per cent to trade at 11.4 cents as at 11.08am on Thursday.