Moody's Investors Service has placed the "Baa3" rating of Lippo Malls Indonesia Retail Trust (LMIRT) on review for downgrade, citing the deteriorating credit quality of key entities within the Lippo group, which contribute around one-third of the trust's revenue.
If a downgrade does occur, the rating could drop to "Ba1" or below, which is junk bond territory. The credit rating agency has up to 90 days to finalise the rating.
In its latest report, it noted that LMIRT is closely linked to the Lippo group of companies, due to these firms' roles as sponsor, property pipeline provider, Reit manager, property manager and tenants. Moody's said the trust's exposure to these Lippo-related firms is "credit negative", as the agency had also downgraded Lippo Karawaci's and Matahari Putra Prima's "B1 stable" ratings this year. LMIRT is sponsored by Lippo Karawaci, which owns a 29.8 per cent stake in the trust.
Over the next 12 to 18 months, Moody's expects that LMIRT will continue to derive a third of its revenue from the Lippo group of companies, particularly after the trust extended the master lease agreement at Lippo Mall Kemang with Lippo Karawaci for a further two years. Moody's vice-president Jacintha Poh said: "We expect that LMIRT's financial metrics will weaken on the back of aggressive acquisitions, such that the trust will prove more vulnerable to foreign exchange rate fluctuations and asset devaluations."