Lippo times market to perfection

  • 11 Sep 2006
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Indonesian property developer Lippo Karawaci made a spectacular market debut in February, providing a fine example of how good market timing can deliver tangible results in terms of the pricing, size and structure that an issuer can achieve. Adam Harper finds out why Lippo accessed the dollar market — and why it probably won't again for a long time.

Frequent borrowers, so the theory goes, should know how to time the market well. Typically, they are big enough to have dedicated people monitoring the debt capital markets; they certainly have hordes of investment bankers showing them ideas; and, they have outstanding bonds to give them an idea of when the market offers the best value for a new issue.

But Asia's smaller corporate issuers rarely have these luxuries. Yet, in February, Indonesian property company Lippo Karawaci was able to issue a $250m five year unsecured deal that would probably not have been possible with the same structure a month later. It was an example of superlative timing. UBS was the bookrunner.

"The market changed after our issue and is still a bit jittery at this stage — others who went on to try the market later in the year found it much more difficult," says Viven Sitiabudi, president of Lippo Karawaci in Jakarta. "I guess, with hindsight, the timing was perfect for us."

Lippo was certainly able to catch a sweet spot for the high yield market between a difficult period before Christmas and a long, depressed period that started in April and is perhaps only now coming to an end. But B2/B+ rated Lippo was able to increase its deal from $180m after raising some $720m of orders, and price the bonds at 8.875% — well within the 9% guidance.

"Every real money account in Asia and Europe that buys high yield was involved," said Cristian Jonsson, head of debt syndicate for Asia Pacific at UBS in Singapore, at the time. "Investors have a lot of cash and this is a great credit for investors seeking yield."

However, some three weeks after launch, Lippo's bonds had traded down to a 99.5 bid, and Asian bond bankers doubted whether it could have tapped the market at that time — especially with a deal that was not secured against assets or shares.

But executives at Lippo point to its sovereign-level credit rating and strong financials as the reasons that investors were prepared to accept a finely priced and unsecured transaction. The company has the backing of Austria's RZB Bank, which owns 11.1%, has assets worth $575m, made Ebitda of Rph623bn ($69m) last financial year and has a net debt to equity ratio of 0.52.

"We were confident because we had a good rating, a viable business model and very stable revenues," says Sitiabudi. "Those were the factors that made people comfortable with an unsecured deal. Although we knew there was plenty of liquidity in the market, we knew that, as an Indonesian property company, we had a 50-50 chance [of success]. But UBS was confident. Ultimately, the market supported us very well."

Lippo's achievement is the more impressive when you consider that it was an opportunistic, if not accidental, borrower. "Our objective was to replace short term bank debt with longer term funding," says Sitiabudi.

"When we looked at the local bond market at the time, it was collapsing. But there was plenty of offshore liquidity, so we decided to go for the global market."

At the time, Standard & Poor's noted that B2/B+ rated Lippo Karawaci had short term debts of Rph1.5tr ($164m) and cash and undrawn credit facilities worth only $51m. However, this relative lack of liquidity did not deter investors. The rating agency said its concern would lessen after the bond issue had been successfully completed.

Lippo used about $170m to refinance the bank debt and the company said it has Rph400bn ($44m) set aside for expansion and acquisitions this year and next, as well as Rph100bn ($11m) to buy a hotel in Medan on the island of Sumatra.

The company's success with this fundraising, as well as a changing approach to the property business, means that it is unlikely to tap the international capital markets again soon.

"We have more than enough to cover
our existing expenditure plans," says Sitiabudi. "And our policy going
forward will be mixed-use development, both building properties to sell them and keeping them for rental income. This means the process can be self-financing and the proceeds from sales can be used for long term investments. With that in mind, our funding requirement will be minimal."

Lippo Karawaci, which was the first property company in Indonesia to develop townships, is also diversifying away from property with healthcare, hospitality and infrastructure investments.

Sitiabudi says that a "bumpy" property market caused the company to postpone some projects until later in the year. "But we believe that they will launch before year end and that they will sell well," he says. "And we expect a slight increase in profit over 2005."

The company's operating earnings before interest, tax, deductions and amortisation was Rph623bn for the year ended December 31, 2005, up from Rph450bn in 2004.

Sitiabudi is confident that Indonesia's often volatile political and economic life will remain calm in the near future under the government of president Susilo Bambang Yudhoyono. "Things are politically stable at this stage," he says. "Economically, the second quarter is going to look much better. We do have elections in 2010, but, until then we expect a smooth political situation, although obviously conditions can change."

  • 11 Sep 2006

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 17 Oct 2016
1 JPMorgan 310,048.18 1328 8.75%
2 Citi 285,934.48 1059 8.07%
3 Barclays 258,057.88 833 7.29%
4 Bank of America Merrill Lynch 248,459.06 911 7.01%
5 HSBC 218,245.86 884 6.16%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 JPMorgan 29,669.98 55 6.95%
2 UniCredit 28,692.62 136 6.73%
3 BNP Paribas 28,431.90 139 6.66%
4 HSBC 22,935.49 112 5.38%
5 ING 18,645.88 118 4.37%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 JPMorgan 14,593.71 79 10.38%
2 Goldman Sachs 11,713.19 63 8.33%
3 Morgan Stanley 9,435.23 48 6.71%
4 Bank of America Merrill Lynch 9,019.27 40 6.41%
5 UBS 8,763.73 42 6.23%