Lippo Malls Indonesia Retail Trust: Sponsoring the Sponsor
Since our 28-May initiation report on Lippo Malls Indonesia Retail Trust (LMIRT)’s two perpetual bonds (LMRTSP 6.6% and 7% Perpetual (in SGD)) and LMRTSP 7.25% 6/24 (in USD)) with an Underweight recommendation, the perpetuals underperformed while the senior bonds outperformed.
LMRTSP 6/24 outperformance is not justified and we believe headline risk on potential rating downgrades, cashflow uncertainties, and the use of LMIRT to sustain its sponsor (PT Lippo Karawaci (Lippo)) by buying its assets during the pandemic leaves us more questions than answers on whether LMIRT is for investors or the sponsor. That said, we reiterate our UNDERWEIGHT recommendation on the LMRTSP complex.
LMIRT’s operating earnings were worse than expected as a result of the COVID-19 pandemic. Our liquidity calculation leads us to believe LMIRT does not have sufficient cash to call its LMRTSP 7% Perp next September. Even without the call on the perp, the trust’s decision to acquire new assets from Lippo, especially with financing and rights from Lippo, further constrains LMIRT’s financial flexibility.
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