PT LIPPO KARAWACI TBK
Fitch Ratings has downgraded
Fitch has also downgraded the ratings on LPKR's US dollar notes due
Fitch Ratings Indonesia has simultaneously downgraded LPKR's National Long-Term Rating to 'B-(idn)' from 'B+(idn)'. All ratings have been placed on Rating Watch Negative (RWN).
The downgrade reflects Fitch's view that LPKR's proposed tender offer, combined with consent solicitation, constitutes a distressed debt exchange (DDE). We believe that the transaction is being conducted to avoid a default on the US dollar notes, taking into consideration LPKR's unsustainable liquidity profile.
The RWN reflects the possibility that LPKR's ratings could be downgraded to 'C', which is in line with Fitch's DDE criteria. It also reflects the uncertainty that a majority of noteholders by outstanding principal may not consent to the proposed waivers. We expect to resolve the RWN when the consent solicitation process is completed.
B' National Ratings denote a significantly elevated level of default risk relative to other issuers or obligations in the same country or monetary union.
Key Rating Drivers
Considered a DDE: The combination of a tender offer plus consent solicitation makes LPKR's proposal a DDE, in our view. The proposed unmodified Dutch auction process sets minimum tender prices at discounts to par. The minimum tender price, including a consent fee of
The offer is combined with consent solicitation to allow LPKR to sell 10.4% of a restricted subsidiary,
Tender
The completion of the tender offer may retire a majority of LPKR's 2025 notes, depending on the distribution of the proceeds. It would reduce, but not eliminate, refinancing risk in the near term. LPKR also has
Weak Holdco Interest Coverage: LPKR's holding-company (holdco) liquidity will remain under pressure even if the tender offer successfully reduces total debt. The holdco's debt-servicing requirements have increased given our expectation of a higher interest rate environment and a weakening rupiah to the US dollar. We estimate the holdco's EBITDA interest coverage will be less than 1.5x from 2024 to 2026.
Some
Steady Pre-Sales, Improving FCF: Consolidated marketing pre-sales of
Rating Based on Standalone Profile: We assess LPKR's rating based on the standalone company and closely held subsidiaries, and exclude its key listed subsidiaries, LPCK and SILO. This is to reflect limited cash fungibility between LPKR and its listed subsidiaries, while LPKR is the obligor of most of the consolidated group's debt.
Derivation Summary
LPKR's ratings reflect its unsustainable liquidity profile as well as the tender offer and concurrent consent solicitation.
APLN has two unpledged properties remaining, valued at around
However, KIJA's cash balance could deplete unless the company regains access to new financing to fund near-term debt maturities. KIJA's contracted sales will remain small with exposure to cyclical industrial land sales, counterbalanced by improving non-development cash flow from its power plant, dry port and estate-management services, covering its interest expense.
Key Assumptions
Fitch's Key Assumptions Within the Rating Case for the Issuer:
Pre-sales, excluding bulk land at standalone level, of
FCF improves to
Dividend income from key subsidiaries of
Neutral EBITDA from recurring-income businesses, such as hotels, malls and property management by 2024.
Recovery Analysis
Recovery Rating Assumptions:
LPKR, excluding SILO,
10% administrative claims;
A 25% haircut on trade receivables, in line with domestic and regional peers;
A 50% haircut on the book value of adjusted inventory, in line with domestic and regional peers;
A 50% haircut on net property, plant and equipment;
Proceeds from the disposal of LPKR's 58% share of SILO and 47% share of LMIRT will be available during a liquidation. We used SILO's share price (
A 60% haircut on SILO's and LMIRT's market value given LPKR's substantial stake;
We estimate, based on our calculation of the adjusted liquidation value after administrative claims, the recovery rate of the senior unsecured bonds to be 100%, which corresponds to a Recovery Rating of 'RR2'. However, we have rated the senior unsecured bonds 'CCC'/'RR4' because
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating action is unlikely until the company can improve liquidity and resolves the near-term maturities.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Success of the consent solicitation to allow for the sale of the SILO stake that would pave the way for the execution of the tender offer, which Fitch considers a DDE. In this case, based on Fitch's criteria, we expect to downgrade the IDR to 'C' once bondholders agree and set a date for the debt exchange.
We could also downgrade LPKR's IDR if the tender offer and consent solicitation do not go through.
Liquidity and Debt Structure
Unsustainable Liquidity: LPKR's proposed tender offer and consent solicitation will only partly address its unsecured notes due
Issuer Profile
LPKR is an
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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