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Lippo Malls on brink as Fitch, Moody’s raise debt concerns
LMIRT's tender offer for unsecured notes has raised concerns about the firm’s ability to repay debts, prompting rating changes from Fitch and Moody's.
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Buildings are pictured during sunset on Dec. 20, 2023, in Jakarta. (AFP/Yasuyoshi Chiba)
L
ippo Malls Indonesia Retail Trust (LMIRT) is under pressure after two credit rating agencies raised concerns about its ability to repay debts.
The rating action follows an announcement by LMIRT on Dec. 27 that it would proceed with a tender offer for its senior unsecured notes due in 2024 and 2026.
LMIRT received valid tenders on US$43.5 million of notes due in 2024, amounting to 18.8 percent of outstanding notes, and on $38.5 million of notes due in 2026, amounting to 21.2 percent of outstanding notes, according to a statement issued by Fitch Ratings on Dec. 29.
The credit rating agency considers the completed tender offer a “distressed debt exchange”, arguing in a statement on Thursday that the transaction had been conducted to avoid a traditional default and had resulted in a “material reduction in terms”, to the detriment of noteholders.
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The rating agency’s key assumptions for the issuer were based on three factors: net property income of $92.6 million in 2023 and in 2024, including from Jakarta’s Lippo Mall Puri, capital expenditure of $8.2 million in 2023 and $26.3 million in 2024 and no dividend payouts or perpetual coupon distribution in 2023 or 2024.
Following the tender offer, Fitch Ratings downgraded LMIRT’s long-term issuer default rating (IDR) to RD (restricted default) from C. Subsequently, Fitch upgraded LMIRT's long-term IDR to CC “to reflect the increasing likelihood of a debt restructuring following the low take-up rate of the tender offer, and the trust's narrowing options to repay the remaining $188.3 million of unsecured notes maturing on June 19, 2024, at par value,” according to the statement from Thursday.
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