(Bloomberg) — A plan by Indonesian builder PT Lippo Karawaci to repurchase its dollar bonds will be in focus on Monday as elevated borrowing costs squeeze the finances of developers in Asia.
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Its unit Theta Capital Pte. Ltd. is buying back as much as $432 million of bonds via a tender offer which expires at Monday 4 p.m. London time. A successful repayment will help reduce its debt pile and boost bondholders’ confidence in the group.
“We see this as an opportunistic liability management exercise,” said Boh Hui Ling, an analyst at Bank of Singapore. The transaction can help address Lippo Karawaci’s sizeable debt maturity wall over the next two years, she said.
The company has offered to pay at least $965 for every $1,000 in principal amount of the notes due in January 2025 and a minimum of $895 for the ones coming due in October 2026.
Bonds have gained since the announcement last month. The 2025 note traded at 98.7 cents on the dollar during Monday early trading in Asia, while the 2026 debt was at 92.4 cents, according to prices compiled by Bloomberg.
Like elsewhere in Asia, high borrowing costs at home and abroad have strained some Indonesian developers. A weaker rupiah is also making it harder for them to repay debt after years of difficult operating conditions.
Besides the debt exchange, Lippo recently sold a stake in a hospital unit to raise 3.86 trillion rupiah ($237 million). The company is trying to avoid a default on its dollar notes as its liquidity stays under pressure, according to Fitch Ratings.
The buyback could ease immediate pressure on Lippo, but challenges to raise funds to meet its liabilities remain, analysts including Anindya Saraswati wrote in a report last month, downgrading the company’s ratings deeper into junk. “It would reduce, but not eliminate, refinancing risk in the near term.”
A spokesperson for Lippo Karawaci has not replied to questions sent by Bloomberg.
What’s does the company do?
Lippo has a township west of Jakarta with a hospital, university and luxury homes. The conglomerate once had an ambition to build a satellite city in the east of Jakarta, touted as the ‘Shenzhen of Indonesia,’ but the plan has been scaled back as a bribery case hampered its progress.
What else is happening?
The group’s Singapore-listed Lippo Malls Indonesia Retail Trust also has $97.6 million of notes due this month and $114.7 million maturing in February 2026. “While Lippo Malls was able to manage in meeting the 2024 notes maturity, we still do not see value in its notes that will become due in February 2026,” Nomura’s credit desk analyst Eric Liu wrote in a note.
A representative from Lippo Malls declined to comment to Bloomberg on its future financing plan.
Why does it matter?
Lippo’s ability to get funds to pay for their maturing debt will hinge on the willingness of investors and banks to lend money to weaker borrowers in Indonesia. The nation’s developers have $700 million of bonds maturing by 2025 and most of that is likely to be restructured, according to Fiona Chen, an analyst at S&P Global Ratings.
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