Worst Asian Junk Bond Start Since 2008 Limits Lippo Debt Revampby
Just 37% of holders take up developer's bond exchange offer
S&P has most bearish outlook on Indonesia firms since 2008
The worst start for Asian junk bonds since 2008 doesn’t bode well for issuers’ efforts to negotiate some slack on repayment terms.
Indonesian developer PT Lippo Karawaci’s attempt to push out the maturity of $250 million of 2019 notes by four years was accepted by holders of 37 percent of the debt by the early-bird closing date of Jan. 29, according to a filing Monday. That’s its second debt-extension in less than four years. PT Berau Coal Energy and PT Bumi Resources are also seeking to reschedule debt as Indonesian issuers face $8 billion of dollar bonds due by the end of 2018.
Standard & Poor’s has eight Indonesian companies on negative outlook or on review with negative implications, the highest level since 2009. That’s about 30 percent of companies it rates in Southeast Asia’s biggest economy -- up from 20 percent in June and less than 10 percent in mid-2014. Asian high-yield dollar bonds lost 1 percent in January, according to a Bank of America Merrill Lynch index, amid an emerging-market rout.
The modest acceptance figure may be due to “a sharp re-assessment of the risk-return reward by investors for companies operating in emerging markets,” said Kah Ling Chan, Singapore-based director of Asia Pacific corporate ratings at S&P. It’s also influenced by “an operating environment for Indonesian developers which will remain tough in 2016 in our view, and a company that remains aggressive in its financial and growth strategy,” she said.
Lippo Karawaci is now extending the early-bird offer of 102.25 cents on the dollar to latecomers as well, which includes fees to loosen debt covenants, before the Feb. 4 closing date. That’s up from 100.875 cents. It also raised the yield on the proposed 2023 notes to 9 percent on Tuesday from an initial guidance of 8.75 percent.
Calls to Lippo on Monday and Tuesday went unanswered. Company spokesmen Danang Jati and Mark Wong didn’t immediately reply to two e-mails from Bloomberg News.
Lippo’s 2019 notes have lost 0.7 percent since the exchange was unveiled on Jan. 18, driving yields up to 7.23 percent from 6.92 percent, according to Bloomberg-compiled prices. On average, Indonesian high-yield dollar bonds fell 0.4 percent over the same period versus gains in notes from Singapore, Philippines and Thailand.
Indonesian corporate foreign debt appears manageable for now with about $1.1 billion of $32 billion of outstanding dollar bonds coming due this year. But pressure is building, with $2.76 billion maturing in 2017 and $4.15 billion in 2018, according to data compiled by Bloomberg.
Apart from Lippo Karawaci’s 2019 notes, the Jakarta-based developer of homes, hospitals, malls and hotels also has $403.3 million of bonds due in 2020 and $150 million in 2022. The securities are ranked BB- by S&P and Ba3 by Moody’s Investors Service, or three levels below investment grade.
“The low acceptance level is expected,” said Annisa Lee, a credit analyst in Hong Kong at Nomura Holdings Inc., referring to the 37 percent rate. “Investors in general prefer short-dated bonds in an uncertain investment environment.”
Combined sales of seven major Indonesian developers fell 59 percent in the third quarter of 2015 from a year earlier, with leverage worsening to 35.5 percent from the end of 2012 when they had net cash, Fitch Ratings said in a November report. That same month, S&P predicted no increase in 2016 property sales in the country, removing a forecast for 25 percent growth.
Lippo Karawaci made almost 3 trillion rupiah of sales during the first nine months of 2015, having scaled back its annual target by 20 percent to 4 trillion rupiah. Apart from the bond swap, the company also plans to add about $100 million to its existing senior unsecured notes, according to S&P.
“We are bearish on the Indonesian property sector,” said Nuj Chiaranussati, a Singapore-based credit analyst at Gimme Credit LLC. “There are too many headwinds like weak sales, high interest rates and sluggish commodity prices which affect consumer sentiment.”