PT Lippo Karawaci Tbk, an Indonesia-based company primarily engaged in property development, is looking to divest its non-core assets as it seeks increase financial flexibility and ramp up focus on urban development and build new townships across the archipelago.
Lippo Karawaci has already undertaken measures to sell its Puri Shopping Mall to Singapore-listed LMIR Trust – a transaction expected to be completed by end of this year, said a person aware of the development.
Going forward, the company could look at divesting more assets including hotels and shopping malls and has approached a slew of private equity (PE) firms, real estate funds and property developers for the same, the person added.
However, talks are still at a preliminary stage and the company is yet to appoint sell-side advisors.
Earlier this year, in January, Lippo Karawaci sold three malls located at Bandar Lampung in Lampung Province, Denpasar in Bali Province and Depok in West Java Province to Warburg Pincus-backed NWP Retail. Other than that, LMIR Trust, an affiliated investment arm of Lippo Group in Singapore, has also sold two multiplexes to NWP Retail in Jakarta and Medan, North Sumatera.
The sale of these malls is in line with Lippo’s plan to focus on the tier-I cities, added the person mentioned above.
Meanwhile, Lippo Karawaci’s spokesperson, when contacted, did not revert on our queries on the company’s ‘diversification’ plans.
Lippo Karawaci’s hospitality business The Aryaduta Hotel and Resort Group could be next in line for sale as its size is not considered significant enough for the group. While talks were initiated to facilitate the sale process, the unforeseen COVID-19 pandemic and its adverse impact on the tourism industry may have slowed down its plans.
Even as selling hotels equity or assets continue to be on the radar for Lippo Karawaci, the company could also explore partnership options with large international hotel operators, said the person. “However, these are still under discussion.”
According to information available on its website, the company currently has as many as 10 hotels across Indonesia that operate under PT Aryaduta International Management that registered total assets worth Rp 138.5 billion at the end of 2019.
Lippo Group earlier raised funding from PE investors such as CVC Capital Partners for its business arms Siloam Hospitals, Link Net and Matahari Department Store, and Temasek Holdings for Matahari Putra Prima.
The company’s diversification plan is more opportunistic in nature and is a “part of its long-term non-core divestment strategy,” added the person.
Take the sale of Puri Mall for instance. First announced in March 2019, Puri Mall first garnered a valuation of Rp 3.7 trillion that was subsequently revised to Rp 3.5 trillion ($330.2 million) in August 2020 amidst the COVID-19 crisis. Its sale is a part of the restructuring exercise that the company has been undertaking at a group level.
The company has also raised capital through a $730 million rights issue in July 2019. Besides, it also sold its stake in Myanmar’s Pun Hlaing Siloam Hospital in April 2019.
Lippo Karawaci’s financial restructuring has reportedly been triggered by the bribery scandal the company was involved in October 2018 for its Meikarta project in Cikarang area, Bekasi Regency, West Java Province.
The company was then accused of bribing government officials of Bekasi Regency after which in November 2018, Fitch Ratings downgraded its National Long-Term Rating and assigned a Negative Outlook.
Simultaneously, the company’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR), as well as its senior unsecured rating and rating on its US dollar notes were also downgraded.
Months later, in January 2019, S&P Global Ratings downgraded its long-term issuer credit rating on Lippo Karawaci to CCC+ from B-, with a negative outlook.
While this resulted in Lippo Karawaci’s stock price to fall from Rp 436 in early 2018 to Rp 201 per share by the end of the same year, the company registered a Rp 1.66 trillion profit during the end of 2018, garnering revenue worth Rp 11.05 trillion. One of the reasons behind this was its move to deconsolidate Mahkota Sentosa Utama, the developer of Meikarta project, through its gradual stake sale since mid-2018.
Lippo Karawaci’s existing backers are PE firm Gateway Fund Partners, US investor George Raymond Zage III and Hong Kong’s Chow Tai Fook, who participated in its rights issue.