Fitch Ratings has downgraded Lippo Malls Indonesia Retail Trust’s (LMIRT) D5IU long-term issuer default rating to “CCC-” from “CCC”.
The rating agency has also downgraded the rating on LMIRT’s senior unsecured notes due 2024 and 2026 to “CCC-” from “CCC”, with a recovery rating of “RR4”.
The downgrade reflects material delays in the refinancing of LMIRT's term loans due in Nov 2023 and Jan 2024, Fitch says in a statement.
“This has increased the risk that arms-length financing may not be available to repay debt, in Fitch's view. The independent auditor has also given an unmodified audit opinion with an emphasis of matter on material uncertainty related to going concern in its audit report on the audited financial statements for 2022,” it adds.
In its key rating drivers, Fitch says that LMIRT’s internal liquidity is insufficient to meet its debt maturities of around $547 million in the next 18 months. The trust had $111 million in cash at the end of 2022.
Fitch notes that LMIRT’s financial flexibility can improve marginally by halting distributions as the trust did for 1QFY2023 to holders of perpetual securities and units. However, it can only conserve up to $43 million of cash in 2023 by Fitch’s estimates.
See also: Changes in ICR, leverage to come into effect immediately, with additional disclosures in March
“LMIRT plans to sell non-core assets as a longer-term solution, but we expect disposals to be small and subject to execution risk,” it adds.
Fitch forecasts that LMIRT’s net property income would reach $136 million in 2023, supported by a gradual improvement in the occupancy rate to 84% and falling rent rebates to tenants as footfall and tenant sales rise.
The rating agency expects LMIRT’s occupancy to stabilise, but remain below pre-pandemic levels of over 90% for the next two years. This is due to a post-Covid-19 pandemic structural weakening occupancy at several malls and redevelopment activities at two malls, Fitch says.
Units in LMIRT closed 0.1 cent lower or -5.88% down on Apr 6 at 1.6 cents.
