Indonesia billionaire’s builder joins top Asia junk bonds

The amount of negative-yielding bonds globally have jumped 47% to more than $12 trillion this year as signs that the Federal Reserve and the European Central Bank will ease spurred a bond rally.

A BUILDER controlled by Indonesia’s billionaire Riady family has rebounded from the depths of distress to become one of the best performers in the Asia junk dollar bond market.

The turnaround by Lippo Karawaci, among Indonesia’s biggest developers, comes after moves to raise cash to pay down debt, and dovetails with two broader themes.

Sentiment toward developers is improving as Indonesian president Joko Widodo is on course to be re-elected with a comfortable majority, fuelling expectations he will push ahead with an ambitious infrastructure programme. Meanwhile, a rally in emerging market assets and a stabilised rupiah are also helping the country’s riskier borrowers refinance their debt.

Lippo Karawaci said in March that it will raise US$730mil through a rights issue of shares that has attracted high-profile investors including former Goldman Sachs Group Inc investment banker Raymond Zage and Hong Kong’s Chow Tai Fook. The Indonesian company already improved its cash position in the first quarter by securing a portion of those funds, with the injection of US$280mil through an advanced subscription by its controlling shareholder. The builder will raise another US$280mil by selling some healthcare assets and a shopping mall.

The company has also shaken up its management, with John Riady, grandson of group founder Mochtar Riady, taking the reins over from his father, who was probed last year.

“There is sufficient capital to address Lippo Karawaci’s debt obligations, so it now comes down to its execution of projects and the company’s ability to generate a healthy operating cashflow,” said Dhiraj Bajaj, a Singapore-based money manager at Lombard Odier (Singapore) Ltd. — Bloomberg