S&P rates Lippo Karawaci notes B+

Standard & Poor's said it affirmed the B+ rating on the $250 million unsecured notes due 2011 issued by Lippo Karawaci Finance BV, a subsidiary wholly owned by Indonesia-based PT Lippo Karawaci Tbk. (B+/stable). The issue size was increased to $250 million from an initial offering of $180 million.

About $170 million of the proceeds were used to refinance existing debts.

The notes' rating is based on the continuity of the consolidated corporate entity of Lippo Karawaci and its subsidiaries, PT Sentra Dwimandiri and PT Wisma Jatim Propertindo, the agency said. The issue rating is also based on the confirmation given by Lippo Karawaci that any default by an operating subsidiary will not trigger a cross default clause on Lippo Karawaci.

S&P said the rating on Lippo Karawaci reflects its leading position in the domestic property development market and favorable cost position with a large and low-cost land bank. Furthermore, its exposure to the health care, hospitality and infrastructure sectors helps provide recurring income that accounts for some 40% of revenue.

Nevertheless, the rating is constrained by the company's aggressive financial profile, substantive inter-company transactions and cash flow volatility due to the cyclical property development market, the agency said. In addition, the company is vulnerable to the risk of further rupiah depreciation and exposure to operating risk.

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