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S&P lowers outlook on Lippo Karawaci to negative

S&P Global Ratings lowered its outlook on Indonesia's PT Lippo Karawaci Tbk. to negative from stable, while affirming its B- issuer credit rating.

The rating agency said Jan. 8 that the lowered outlook reflects the steady erosion in Lippo Karawaci's liquidity since its July 2019 rights issue, the limited visibility on the company's liquidity and the sustainability of its balance sheet beyond the first half of 2021.

Ratings estimates that Lippo Karawaci's cash balance declined to slightly below 3 trillion rupiah at the holding company level as of Dec. 31, 2019. The rating agency said the property developer's balance sheet remains highly leveraged despite the July 2019 rights issue, given Lippo Karawaci applied about 24% of the rights issue proceeds to debt repayment over the period.

In addition, there is significant uncertainty about whether the company can monetize other nonstrategic assets on a timely basis, beyond the proposed disposal of Puri Mall in 2020, the rating agency said.

Ratings said Lippo Karawaci's capacity to service fixed financial and operating charges in 2020 and 2021 will depend more than ever on further asset monetization, given still-slow marketing sales for real estate developers in Indonesia, reducing liquidity buffer from the rights issue and the rating agency's projection of negative discretionary cash flows in both years.

The negative outlook on Lippo Karawaci reflects the limited visibility that the rating agency has on the company's liquidity sources and its reduced financial flexibility into 2021 and beyond the potential Puri sale, amid large and recurring interest and operating charges.

As of Jan. 8, US$1 was equivalent to 13,874.00 Indonesian rupiah.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings document referred to in this news brief can be found here.