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Lippo Karawaci: Bond Problem

Lippo Karawaci (LKPR) is one of the companies with the most sought-after financial statement because its status as the largest property company in Indonesia. It is also the only property company that listed as bluchip due to its market cap that was above one billion Dollar. The major assets of this group was finally released its financial statement of First Quarter 2010 on last 31 May. Guess what? Its net profit still steady, and slightly up of 4.3%. But then why did since early April, the stock price continue to fall until today (when this article was written), to only 400?

At a glance, there is no wrong about LKPR’s performance. Its assets are almost invariant, and only down of 0.2%, while its bonds fell of 5.8%, and its equity up of 7.5%, which was sustained by the increase in its profit balance. What about the sales? It increased of 11.1%, and the net profit increased of 4.3%. Therefore, although the performance was not increasing, it did not decrease yet. Because today, property sector is quite sluggish, so the performance of LKPR is considered well.

Then what makes its stock continues to fall?

Mr. James Riady, the owner of Lippo Group, has quite similar habit with Mr. Ical: likes to owe debt. On April 1st, LKPR announced that they will release debt securities amounted to US$ 350 million, or around Rp3 trillion. That was a huge amount, considering the bank loan debt and LKPR’s obligation that has reached Rp2.8 trillion, or 41.2% of its total liabilities. While LPKR’s bond itself is already greater than its equity (Rp6.7 trillion of liabilities, and Rp5.0 trillion of equity).

In fact, for other companies in different sector, it does not matter if the liabilities are bigger than its equity, as long as it’s not too large. However, it will be different for property sector. Ideally, a property company must have bigger equity if not equal to the liability. Why so? Because property business is not as prospective as consumer goods business, and it has higher risk, so the capital must be strong enough. Moreover, the equity of most property companies is indeed bigger than the liability. LKPR is an exception, although there is also the other. The debt of ELTY, KIJA, PWON, SMRA, and probably other smaller property companies, is also bigger than its equity.

The addition of Rp3 trillion of debt will make the loan debt and bond of LKPR increased to Rp5.8 trillion, or it is already bigger than its equity. It is reasonable when the investors freaked out, although the issuance of the debt securities still a plan. As a result, four days later (4 April), LPKR started moving down from its peak of 640.

On April 19, LKPR was still steady on the position of 590 (in average). Then suddenly, LKPR announced that they will issue obligation to patch the the bond debt that will due soon. The investors started to panic, and that’s when LKPR started to drop dramatically. On May 14, the issuance of bonds is finally realized, where LKPR’s subsidiary, Sigma Capital, officially issued bonds amounted to US$ 271 million. The declining was ultimately unstoppable. At that time, LKPR still in the position of 550, and now it’s on position of 400.

So exactly how many bonds payable of LPKR now?

Because the issuance of bond activity is done after March 31, then we can see the report on the financial statement of the second quartal later. But we can still calculate it. On First Quarter 2010, the bond payable of LKPR is Rp2.5 trillion (in average). The addition of those bonds, if using rate of Rp9,200 per US Dollar, is to be about Rp2.5 trillion, so the total is Rp4.8 trillion. Because the previous bond will be due on March 9, 2011, then the amount of Rp4.8 trillion was not reduced. On the contrary, the interest expense to be paid by LKPR was increased, because the interest rate was increased from 8.9% to be 9.0% for the new bonds.

Therefore, for the time being, it is not really important to see LKPR from its fundamental point, because their performance is perfectly normal and there is nothing unusual. LPKR’s stocks are lately more influenced by the corporate’s action. So, whether their shares will soon rise? It was almost entirely in the hands of Mr. James himself. Let’s say that someday LKPR will release announcement that they will pay off the debt or the half of it, then it almost certain that LKPR will soar soon.

However, for the moment, it seems that there is no sign to that. Probably Mr. James has not seen any importance to raise the price of LKPR, so that he let it on its current price. LPKR, on its management’s answer to the question of IDX regarding the volatility of share transactions issued in last June 2nd, LPKR stated that they did not know anything about the drastic decline in the stock price, and also did not mention that the company will undertake certain corporate actions in the nearest future.

The price of 400 is indeed very low. The lowest price of LKPR on the last year was 345. So even if in the future LKPR will still go down, it won’t be lower than that.

Performance Rating on First Quarter 2010: BBB
Stock Rating on 400: BBB

Original article was written on June 3rd, 2010

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