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Lippo Karawaci secures US$1b in funding; names new CEO and CFO in transformation plan

INDONESIAN real estate developer PT Lippo Karawaci Tbk has secured US$1.01 billion in funding from a rights issue and asset divestment. It has also appointed John Riady as CEO and Surya Tatang as chief financial officer, both with immediate effect, in a transformation plan to “recapitalise” the company, revamp its leadership and refocus its business on three core competencies.

Of the US$1.01 billion in funding, US$730 million was from the rights issue underwritten by the Riady family, and US$280 million was from the completion of Lippo Karawaci's asset divestment plans.

The rights issue was done through PT Inti Anugerah Pratama (IAP), its wholly owned subsidiary. IAP will act as a standby purchaser for any remaining rights issue shares not subscribed by other shareholders, the statement added.

The rights exercise share price of 235 rupiah per share is at a discount of 8.2 per cent to the last closing price of Lippo Karawaci as at March 11. The rights issue is subject to approval at an annual general meeting of shareholders scheduled for April 18, and a rights issue registration statement declared effective by the Indonesian Financial Service Authority (OJK). The rights issue is expected to be completed in the first half of 2019, with further details to be announced in due course.

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The company has appointed Peter Yu as director of projects effective March 18; and Bret Ginesky as head of investor relations effective March 25. Marshall Martinus will continue in his role as chief operating officer.

Changes to its board of commissioners include John Prasetio being appointed independent president commissioner and head of audit committee; Anangga Roosdiono as independent commissioner and head of nomination and remuneration committee; and Stephen Riady, George Raymond Zage III and Kin Chan as commissioners.

"On behalf of Lippo Karawaci and the board of commissioners, I would like to thank Theo Sambuaga and the outgoing board of commissioners, Agum Gumelar, Farid Harianto, and Sutiyoso, who have served as commissioners of Lippo Karawaci in the past few years," Mr Prasetio said. 

On Jan 10, 2019, Lippo Karawaci sold its interest in two healthcare joint ventures in Myanmar to OUE Lippo Healthcare Limited, a move expected to generate US$20 million in net proceeds upon completion in the first half of 2019. This was its 40 per cent and 35 per cent stake in Yoma Siloam Hospital Pun Hlaing Limited and Pun Hlaing International Hospital Limited respectively.

Lippo Karawaci also entered into a conditional sale and purchase agreement with Lippo Malls Indonesia Retail Trust (LMIRT), to sell the retail components of its property, Lippo Mall Puri, for an aggregate consideration of US$260 million. The transaction is expected to conclude in the second half of 2019, subject to regulatory, shareholders and other approvals.

The funding programme aims to "right-size" Lippo Karawaci’s balance sheet through deleveraging and repayment of up to US$275 million of debt obligations; provide it with sufficient liquidity buffer to fund debt interest and Reit (real estate investment trust) rental obligations through year end 2020; and “unlock shareholder value” through investments in existing key projects.

To delever its balance sheet and repay up to US$275 million of existing debt, Lippo Karawaci will conduct a bond tender offer to partially buyback 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. 

Credit Suisse, the dealer-manager for the bond tender, is also the sole financial adviser to Lippo Karawaci.

Lippo Karawaci will also undertake a debt repayment initiative, with plans to utilise US$125 million towards the repayment of other existing indebtedness due within the next two years. Balance amounts from the partial bond buyback will be used for debt repayment and/or general corporate purposes.

The funding programme will also help ensure sufficient liquidity buffer of US$290 million for all debt interests and Reit rental obligations up to year end 2020. This is along with an excess cash buffer of US$25 million for working capital and general corporate purposes.

To generate returns through investments in existing key projects, Lippo Karawaci will invest up to US$100 million of the funding proceeds in the development of eight existing key projects in the next three years. These are Holland Village, Millennium Village, Monaco Bay Residences, St Moritz Makassar, Kemang Office, Embarcadero, Lippo Office Thamrin and Holland Village Manado.

Cost of completion of these projects are around US$275 million, funded by not only the US$100 million investment, but also the account receivables to be received from units sold and future sales from completed projects and projects in construction.

In addition, Lippo Karawaci will invest up to US$200 million of the funding to develop Meikarta - an integrated development, by subscribing to its pro-rata 54.4 per cent rights entitlement. It will also act as standby purchaser for any remaining rights issue shares not subscribed by other shareholders of PT Lippo Cikarang Tbk (LPCK), in a planned US$200 million rights issue of LPCK.

The statement added that it expects to incur transaction-related taxes and expenses and Reit rental obligations amounting to US$60 million as part of the sale of Lippo Mall Puri.

Lippo Karawaci said it is also “committed to maintaining” its existing 30.7 per cent stake in LMIRT by participating in the potential future equity fundraising by LMIRT associated with the acquisition of Lippo Mall Puri. This would require an estimate of US$60 million of funding from Lippo Karawaci.