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EMITEN - JAKARTA. International rating agency Fitch Ratings downgraded the credit rating of PT Lippo Karawaci Tbk (LPKR) to the level of CCC + / BB- from BBB +. The company also received a negative outlook.
The downgrade affected the rupiah-denominated long-term bonds to CCC + and senior unsecured bonds issued by Theta Capital Pte Ltd, guaranteed by Lippo and its subsidiaries.
"At the same time, Fitch Ratings Indonesia has downgraded Lippo's National Long-Term Rating and assigned a Negative Outlook. All ratings have been removed from Rating Watch Negative (RWN), on which they were placed on 3 May 2018," according to a Fitch report released on Friday (11/2).
Fitch Ratings mentioned the alleged bribery case in the Lippo Group as one of the considerations in lowering the rating. According to Fitch, corruption cases tarnished the Lippo brand.
"The downgrades follow significant weakening of Lippo's property-development cash flow owing to the sustained poor demand for the company's products due to its focus on mid- to high-end customers and weak execution of some projects that have delayed completion and could diminish the strength of Lippo's brand," said Fitch.
In Fitch's view, Lippo Karawaci chose to delay product launches in order to maintain company margins in the midst of challenging property market conditions. The company also plans to sell non-core assets to meet operating cash flows and interest payments over the next several years. This condition causes a higher risk of liquidity because the sale of assets depends on market risk and delays are beyond management's control.
"The negative outlook reflects the possibility of a further rating downgrade if Lippo does not complete its planned asset sales in the next six months," Fitch Ratings wrote.
