SAHAM GRUP LIPPO - JAKARTA. Moody’s Investors Service has said a bribery allegation relating to the issuance of property permits for the Meikarta project is credit negative for Lippo Karawaci because it highlights the company's corporate governance challenges and potential reputational damage that will hurt both investor and consumer confidence.
“Weaker consumer confidence will slow new marketing sales at the Meikarta project while uncertainty around the completion of units sold could delay or reduce cash collection from customers,” said Jacintha Poh, Woody’s senior analyst, said in a statement on Thursday.
Poh said negative investor sentiment resulting from the allegations could aggravate Lippo Karawaci's poor liquidity and further drive up the yield-to-maturity on the company's outstanding US dollar bonds.
As of Oct. 17, the yield-to-maturity on Lippo Karawaci's 2022 and 2026 bonds had increased by an average of 8 percent since their date of issuance, meaning that Lippo Karawaci would have to pay more interest as it refinanced its debt due over the next 12-18 months, according to Moody’s.
The Corruption Eradication Commission (KPK) arrested Lippo Group executives for alleged bribery relating to the Meikarta project, a township development by Mahkota Sentosa Utama, a subsidiary of subsidiary of Lippo Cikarang.
“We expect the alleged bribery to have a limited financial impact on Lippo Karawaci at the holding company level and that the B3 ratings and negative outlook remain unaffected at this stage,” Poh said, adding that Lippo Karawaci's ratings do not incorporate any cash-flow expectations from the Meikarta project or from Lippo Cikarang.
