Standard & Poor's Ratings Services today revised the outlook on Indonesia-based property developer, PT Lippo Karawaci Tbk to stable from negative. At the same time, S&P also affirmed the B long-term corporate credit rating and issue rating on Lippo Karawaci's senior unsecured US$250 million notes due 2011.
The stable outlook reflects our view that the company has exhibited resilience to the economic slowdown in the second half of 2008 and in 2009 and that its credit protection measures did not deteriorate as we had earlier expected.
In the nine months ended September 2009, Lippo Karawaci's revenue of IDR 1,961.9 trillion and net income of IDR307.6 trillion were improvements of 8.5% and 6.1%, respectively, from the same period in 2008.
The decline in operating margin has eased, particularly since the second half of 2009, thus contributing to the improvement in credit protection metrics. Operating margin for the nine-month period ended September 2009 increased to 20% from 18% for full-year 2008, although this is still lower than 22% in full-year 2007.
"We expect operating conditions in 2010 to improve further, supported by the company's strategy of increasingly deriving revenue and cash flow from recurring stable business segments, such as healthcare, hospitality, infrastructure, and fee-based businesses," said Standard & Poor's credit analyst Wee Khim Loy.
Although we continue to view the company's financial risk profile as highly leveraged, we believe the cushion for Lippo Karawaci to remain at the current 'B' rating has increased, Ms. Loy said.
The rating on Lippo Karawaci reflects the company's leading position in the domestic property development market, large and low-cost land bank, and increasing focus on the more stable business segments. These strengths are tempered by cyclicality risks inherent in the property development business and the company's highly leveraged financial risk profile.
The stable rating outlook reflects our expectation that Lippo Karawaci continues to deliver its projects on time and rely increasingly more on recurring businesses to mitigate the revenue and cash flow volatility inherent in its traditional property development business. The stable outlook also assumes that the company will successfully refinance the bonds due in March 2011.
"We expect operating conditions in 2010 to improve further, supported by the company's strategy of increasingly deriving revenue and cash flow from recurring stable business segments, such as healthcare, hospitality, infrastructure, and fee-based businesses," said Standard & Poor's credit analyst Wee Khim Loy.
Although we continue to view the company's financial risk profile as highly leveraged, we believe the cushion for Lippo Karawaci to remain at the current 'B' rating has increased, Ms. Loy said.
The rating on Lippo Karawaci reflects the company's leading position in the domestic property development market, large and low-cost land bank, and increasing focus on the more stable business segments. These strengths are tempered by cyclicality risks inherent in the property development business and the company's highly leveraged financial risk profile.
The stable rating outlook reflects our expectation that Lippo Karawaci continues to deliver its projects on time and rely increasingly more on recurring businesses to mitigate the revenue and cash flow volatility inherent in its traditional property development business. The stable outlook also assumes that the company will successfully refinance the bonds due in March 2011.
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