Moody's Investors Service has downgraded the corporate family rating (CFR) of Lippo Malls Indonesia Retail Trust (LMIRT) to B3 from B2.
Moody's has also downgraded the backed senior unsecured rating on the bonds issued by a wholly-owned subsidiary of the REIT to B3 from B2.
The outlook on all ratings remains negative.
"The downgrade reflects LMIRT's rising refinancing pressure on the back of its SGD135 million of bank loan maturities in November 2023, the SGD82.5 million of bank loans due in January 2024 and the SGD250 million US dollar bond that will mature in June 2024 amid a tight funding environment," says Rachel Chua, a Moody's Vice President and Senior Analyst.
"The downgrade also reflects a further weakening of the company's interest cover ratio as interest rate hikes continue, as well as our expectations that the weakening Indonesian rupiah relative to the Singapore dollar will likely drive its regulatory leverage ratio beyond the 45% threshold over the next few quarters," says Chua, who is also Moody's lead analyst for LMIRT.
Rationale
LMIRT's weak liquidity and high refinancing needs with looming debt maturities are a pertinent credit risk, especially amid rising inflation and higher interest rates weighing on global economic growth, said Moody’s.
The REIT has a debt maturity wall of around SGD400 million – SGD217.5 million of bank loans and SGD250 million of US dollar bonds – coming due over the next two years, with no concrete refinancing plans in place, the agency added.
Its sponsor, Lippo Karawaci, has publicly stated that it does not expect to provide any specific support to LMIRT.
The company's access to banking lines is limited, despite the recent SGD67.5 million bank loan it obtained. The bank loan was a bridge loan through to November 2023 ahead of the US dollar bond maturity, Moody’s has opined.
Given this, LMIRT's interest coverage will likely stay weak at around 1.5x-1.6x through 2023-24 and will worsen if interest rates spike further.
As of 30 September 2022, only 42.2% of the trust's debt are on fixed rate.
Moody's also estimates LMIRT's adjusted leverage, as measured by adjusted net debt/EBITDA, will improve but remain weak at around 8.0x over 2023-24 as its occupancy rate increases towards 82% in 2023 and 84% in 2024.
As of 30 September 2022, its portfolio occupancy was 80.4%.
The REIT had cash and cash equivalents of SGD107 million as of 30 September 2022, an undrawn and committed credit line of SGD23 million, and annual operating cash flows of around SGD50 million.
These are insufficient to address its capital requirements and the SGD135 million bank loans maturing in November 2022, SGD82.5 million due in January 2024 and the SGD250 million US dollar bond due June 2024.
The REIT will also have to rely on external funding to address these maturities, Moody’s warned.
LMIRT was last last done on the Singapore Exchange at SGD0.031, which presently implies a distribution yield of 11.29% according to data on the Singapore REITs table.