Lippo Karawaci unveils US$1b funding plan, new management team

Singapore

INDONESIAN real estate developer Lippo Karawaci (LPKR) has secured US$1.01 billion in funding via a rights issue and asset divestments which will be used partly to pare debt, while putting in place a new management team under a broader transformation programme.

LPKR has tapped John Riady as chief executive officer, Surya Tatang as chief financial officer and Peter Yu as director of projects as part of a plan to sharpen its focus on its three core competencies - urban housing, lifestyle malls and healthcare.

This comes after Indonesia's anti-graft agency probed LPKR in October last year as part of a bribery investigation related to Lippo Group's US$21 billion Meikarta real estate project. Fitch Ratings and S&P have downgraded LPKR's rating to CCC+ over concerns about liquidity risks.

A newly nominated Board of Commissioners has also been implemented, which includes independent president commissioner John Prasetio as well as commissioners Stephen Riady and George Raymond Zage III. They will oversee the company's strategic direction and corporate governance, in addition to providing guidance to management.

In a statement on Tuesday, LPKR said the rights issue - targeting proceeds of US$730 million - is underwritten by the billionaire Riady family. Another US$280 million will come from asset divestments, including the sale of Lippo Mall Puri to Lippo Malls Indonesia Retail Trust (LMIRT).

LPKR is offering rights shares at 235 rupiah (Rp) per share, representing a discount of 8.2 per cent to its closing price on March 11. Also participating in the rights issue is founder of Tiga Investments Mr Zage and Chow Tai Fook Nominee for a commitment totalling US$70 million.

The rights issue, slated for completion in 1H2019, is subject to shareholders' approval at an upcoming annual general meeting on April 18, as well as the necessary regulatory approvals.

The funding programme will help "right-size LPKR's balance sheet... through repayment of up to US$275 million of debt obligations", while providing the developer with a US$290 million liquidity buffer to fund debt interest payments and REIT rental obligations through end 2020, LPKR said.

In addition to the rights issue, LPKR is also striving to realise US$280 million in net proceeds via divestments by the end of this year, with US$20 million to come from the earlier announced sale of its stakes in two healthcare joint ventures in Myanmar to OUE Lippo Healthcare.

It has also entered into a conditional sale and purchase agreement to divest the retail components of Lippo Mall Puri for US$260 million to LMIRT. That sale is slated for completion in 2H2019.

Some of the proceeds from the billion-dollar funding programme will go towards deleveraging its balance sheet and repaying existing debt. LPKR will conduct a bond buyback to partially buy back up to US$150 million of its outstanding US$410 million 7 per cent senior notes due 2022, and US$425 million 6.75 per cent senior notes due 2026. It also plans to apply S$125 million towards other existing debt due over the next two years.

Over the next three years, LPKR intends to invest up to US$100 million of the funding proceeds in the development of eight existing key projects currently under construction - Holland Village, Millennium Village, Monaco Bay Residences, St Moritz Makassar, Kemang Office, Embarcadero, Lippo Office Thamrin and Holland Village Manado. And up to US$200 million of the funding will be used to develop Meikarta by subscribing to its pro-rata 54.4 per cent rights entitlement from a planned rights issue to be carried out by Lippo Cikarang.

LPKR also highlighted that it is committed to maintaining its existing 30.7 per cent stake in LMIRT by participating in the potential future equity fund-raising relating to the acquisition of Lippo Mall Puri. This would require some US$60 million.

Mr Riady, chief executive officer of LPKR, said: "I see great opportunities to build on what is today Indonesia's leading integrated real estate developer, to drive operational excellence, focus, and a more disciplined approach to capital allocation."

Shares in LPKR fell two Rp to end the day at 254 Rp. Shares in First Reit closed unchanged at S$1 and LMIRT closed half a cent higher at 20.5 Singapore cents. LPKR is sponsor for both.

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