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I recalled reading it was Bridgewater International, a subsidiary that sold the shares, and IT"S NOT OUE LIPPO HEALTHCARE, the mgr, right ? I am open to corrections, forummers,...
I read too that Bridgewater then bought further stakes in something related to LMIRT, after the same date. So, the funds could have been used to buy LMIRT-related stakes ?
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07-10-2019, 10:29 AM
(This post was last modified: 07-10-2019, 11:47 AM by mobo.)
The biggest underlying grey Rhino sitting within First is the opaqueness of its lease agreements with sponsor Lippo and its various healthcare related entities. The consensus now is that these leases were not done on an arm’s length basis, resulting in significant transfer of temporary value from the leaser (Lippo) to the landlord (First). This appears to be a roundabout longer termed income support mechanism to offload mothership properties at inflated rates.
The first wave of lease expiries are due late 2020 and the dominoes will henceforth continue persistently to fall all the way till 2029. If such leases are renewed at a sustainable market rate, there will likely be a significant drop in rental income with each renewal. The extent of rental reduction remains hard to predict though some analysts have tried to estimate the rental gap using topline figures disclosed in Lippo Healthcare and Lippo Karawaci. Regardless though, none of the estimates so far look pretty.
To further compound the situation, the IDR has been depreciating against SGD over the long term, further straining the finances of the leasers and from an objective POV, it really doesn’t make any sense for the hospitals to do business exclusively in Indonesia while having their main cost denominated in SGD. This only further fuels speculation that any renewal will likely not only readjust rates downwards, but do away with the fixed IDR:SGD collar which essentially means FIRST’s income will slowly become subject to IDR volatility.
What will Lippo/First do next?
Looking at their not so illustrious track record in LMIR and OUEC, it is likely they will seek to inject a whole lot of healthcare assets inside and outside Indonesia into the REIT at a price supported by some sort of creative financial engineering that temporarily transfers value to First. The size of the injection will depend on their assessment of market appetite at that time and also the size of the “rental hole”. Investment bankers will play on the following levers to try and come up with something palatable:
1. Renewal terms including rates, currency and length for existing properties
2. Financial engineering and level of temporary value transfer
3. Nature of EFR – Rights issue, private placement, hybrid instruments, preferential offers etc.
4. Selling price of the new properties
5. Funding ratio
6. Mixing NPI Yields of assets from different countries to achieve optimal outcome
It’s actually a very challenging piece of work for the investment banker and Lippo. The best outcome for Lippo and existing unitholders is for them to figure out something that looks presentable enough to paper over the big hole without collapsing the unit price due to lose of confidence. My sense is even if the solution is impeccably executed, it would ultimately still be a “kick the can further down the road” variant as any fundamental correction of past wrongs will require truing up which will paradoxically cause even more value destruction.
If Lippo has any cow sense left, the logical way they would do things is try to structure their deal making which allows a gradual truing up of the "hole" over the next 10 years without fundamentally shaking investor confidence and unduly causing alarm. They will require a combination of good luck factors such as benign market conditions, stable IDR, low level interest rates and breathing space for mothership support in order to pull it through.
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07-10-2019, 06:52 PM
(This post was last modified: 08-10-2019, 12:20 PM by specuvestor.)
Actually Lippo has much more than cow sense... but it is self-interest sense. The focus is very different so they do have their logic but not the same as what you think.
It is generally hazardous to dance with the Indonesian tycoons. Even Rothschild, Wee or Ananda Krishnan were not spared.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward
Think Asset-Business-Structure (ABS)
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08-10-2019, 09:06 AM
(This post was last modified: 08-10-2019, 09:07 AM by corydorus.)
The market is so big. I don't see why the need to challenge tycoons. Very reason I sold my position earlier.
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