New Issue Review : Lippo Malls Indonesia REITS 5Y SGD
Short one. Small issue. SGD 75 mio and not more than SGD 100 mio. Unrated and 27% owned by PT Lippo Karawaci, the largest property company in Indonesia.
Asian reits giving me the creeps now. And Lippo Reits just issued a 5.875% 5Y paper in June. For them to now come and tap the market at 4.75% ? Wow.
Buy at your own risk . The 5Y paper in June was reduced in issue size (to SGD 50 mio) for lack of demand. It would appear that the market has changed its mind.
Headlines today for those who have bought enthusiastically into the fantastic new issue offers this year.
Genting Bhd. Declines After Profit Drops at Singapore Unit
Olam Falls 4.9%, Down Most Since Aug. to Lowest Since July
Looks like their bonds have not moved much since they were issued. So why is Lippo special ?
Well, they do not look very leveraged which means good for bond holders and bad for equity holders. But hold on to your horses. According to the OCBC fixed income report written for the first issuances in July, “Management guided that the company plans to leverage up its balance sheet with medium-term target for aggregate leverage (Total Debt / Total Assets) of 25-30% from 9.2% in 1Q 2012.”
That works out to roughly 400-500 million worth of bonds. Currently they have SGD 250 million outstanding.
My 2 cents worth
Reit or no reit, all getting hazy to me. Who knows when the Indonesian government is going to consider imposing new tax levies like China is, causing all the new high yield Chinese property names to tank horribly in the past week. Franshion 5Y USD and SOHO China 5Y nc3 now looking real ugly. Valuations are dicey and “reit-ing” is fashionable these days allowing the Li Ka Shings to pocket their profits.
I would not buy Lippo as an inflation hedge or bet. I would buy Lippo only if I am considering buying the stock because the bond return looks relatively better and the stock dividends will be marginalised vs the bond especially if they are considering increasing their leverage. I am not an expert on Indonesian retail space although that area looks like a potential growth segment to me. Yet for 4.75% ? I will not be putting alot of bets there.
We should question our motives when buying a fixed income instrument and the viable alternatives. Lippo does not offer the investor any leverage given its lack of ratings. That means you get 4.75% for your full investment (Sep CPI 4.7%). I often wonder the purpose of that from a personal investment perspective ? when an investment into Li & Fung USD perpetual (Baa2/BBB) and Hutchison Whampoa USD (A3/A-) would net you more yield (including the leverage) for much better ratings.