
BADUNG, Indonesia -- Moody's Investors Service has downgraded Lippo Karawaci's credit rating from B1 to B2 with a negative outlook amid concerns about the company's liquidity.
Lippo Karawaci, Indonesia's largest hospital operator and a unit of conglomerate Lippo Group, had been put on a rating watch by Moody's in mid-April after it failed to file its full-year 2017 results on time, the third time over the last year that it had failed to do so.
The company released its audited 2017 results last week that revealed weaker-than-expected operating cash flow, suggesting it may not be able to meet interest payments at the holding company level, said Jacintha Poh, senior analyst at Moody's.
Poh added that the downgrade also reflected the "shift in Lippo Karawaci's business mix over the next 12-18 months, such that its operating cash flows will be reliant on asset sales that are subject to delays and market conditions."
Moody's noted that without the asset sales, the company's net operating cash outflow will be around 800 billion rupiah ($57.5 million). The rating agency added that the company had short-term debt of 1.9 trillion rupiah at the end of 2017, and that it expects Lippo to have "sufficient undrawn committed facility" to cover the debt maturities in 2018, but "remains exposed to refinancing risk in 2019."
Lippo Karawaci had already been downgraded by S&P Global Ratings in December to B from B+ reflecting "Lippo's eroded interest servicing capacity, financial flexibility, and liquidity amid aggressive growth aspirations and softer operating conditions."
The property market in Indonesia over the last couple of years has been subdued, which has hit companies operating in the sector. Lippo, on the other hand, was able to mitigate the income shortfall by selling assets like retail malls and hospitals to its listed REITs in Singapore. But S&P noted that "the ability of these vehicles to absorb more assets has started to decline following the regulatory leverage caps on Singapore-listed REITs enacted mid-2015."
Lippo Karawaci's 2017 results showed the company struggled last year. Revenues were more or less flat compared to the year earlier at 11 trillion rupiah, while its net profit plunged 30% year on year to 614 billion rupiah.