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S&PGRBulletin: Lippo's Deconsolidation Of Meikarta Is NegativeFont size: A | A | A
12:18 AM ET 10/25/18 | Dow Jones
S&PGRBulletin: Lippo's Deconsolidation Of Meikarta Is Negative
(MORE TO FOLLOW) Dow Jones Newswires
October 25, 2018 00:18 ET (04:18 GMT)
Press Release: S&PGRBulletin: Lippo's Deconsolidation Of Meikarta Is Negative
The following is a press release from S&P Global Ratings:
SINGAPORE (S&P Global Ratings) Oct. 25, 2018--PT Lippo Karawaci Tbk.'s
decision to deconsolidate its flagship Meikarta project from its accounts
weakens the Indonesian developer's business position in the long run. This is
because Meikarta is the largest property development project in Lippo's
portfolio, S&P Global Ratings said today. However, our long-term 'B-' rating
and negative outlook are not affected by the move, because it does not alter
Lippo's liquidity at the holding company level.
In announcing its long-delayed results for the first half of 2018, Lippo said
it had deconsolidated its behemoth Meikarta in East Jakarta, after lowering
its stake to 47% in 2017. The deconsolidation will have a marginal adverse
impact on the financial leverage of Lippo, because the Meikarta project has no
We believe this will result in Meikarta leveraging up independently. That
said, obtaining funding in the near term may be a challenge until bribery
allegations related to the project are resolved. Lippo executives were
arrested on Oct. 15, 2018, on charges of bribing officials to receive permits
for the mega-project. At the same time, we expect Lippo would support Meikarta
when necessary. Given its size and reputation risk to the entire group, as we
believe this project could be too big to fail.
Our rating and outlook reflect Lippo's thin liquidity buffers at the holding
company level. The company's cash outflows for the 12 months ending June 2019
include interest expenses of about Indonesian rupiah (IDR) 1 trillion and
construction costs and rental expenses that we estimate at about (IDR) 1.1
trillion. We believe Lippo will also need to maintain cash of IDR800 billion
at the holding company, in line with its loan covenant. Hence the recent sale
of its stake in First REIT, a hospital real-estate trust listed in Singapore,
will be complete in November 2018, and will shore up liquidity at the holding
company by Singapore dollar (S$) 202 million IDR2.2 trillion).
We believe Lippo will remain exposed to refinancing risk, necessitating
further asset sales to bridge its funding gap. The company has a US$50 million
(IDR725 billion) syndicated loan due in April 2019 and another US$75 million
(IDR1.08 trillion) bond due in June 2020. This excludes domestic loans of
IDR660 billion maturing within 12 months from June 2018, which we assumed will
be rolled over.
Lippo Karawaci first-half 2018 financial statements were within expectations.
At the holding company level, cash flows and performance were in line with our
This report does not constitute a rating action.
Primary Credit Analyst: Kah Ling Chan, Singapore (65) 6239-6336;
Secondary Contact: Fiona Chen, Singapore + 65 6216 1085;
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> Dow Jones Newswires
October 25, 2018 00:18 ET (04:18 GMT)