Lippo Malls Indonesia Retail Trust: Stoppage of Perpetual Distributions

Timothy Ang  |   18 Dec 2020  |    271 views

On 14 December 2020, Lippo Malls Indonesia Retail Trust (LMIRT) announced (here) that distribution due to be paid on 19 December 2020 for its LMRTSP 6.6% perpetual bond will not be paid.

We provide an FAQ on this below:

1. Why did LMIRT stop its LMRTSP 6.6% perpetual bond distribution?

As at 30 September 2020, LMIRT’s aggregate distributable income less any distribution made to the holders of its perpetual securities and unitholders was zero. According to the terms of the US$250mn 7.25% senior notes guaranteed by LMIRT, if the amount is zero, LMIRT is only permitted to distribute up to US$5mn for the remaining life of the US$ notes due in 2024. LMIRT had distributed S$4.9mn [4.9?] in September 2020 to perpetual bondholders and S$2mn in 3Q20 dividends to unitholders. It has thus reached the US$5mn limit. As a result, LMIRT has elected not to pay the distribution on 19 December 2020.

2. Can perpetual bond distributions be stopped?

Perpetual bonds are usually subordinated in rank, ranking only above unitholders. As such, they have a lower secured nature. Some perpetuals, including LMIRT’s perpetual bonds, include an interest deferral clause. This allows the issuer to elect not to pay a distribution in whole or in part.

3. Is the LMRTSP 7% perpetual bond distribution also stopped?

Yes. The terms of the US$250mn 7.25% guaranteed senior notes pertain to all of LMIRT’s perpetual bonds and REIT units. Also, LMIRT’s election to stop distribution for its 6.6% perpetuals triggered its dividend stopper clause. This prevents any distribution for other perpetual bonds.

4. Will LMIRT perpetual bondholders be repaid any of the missed coupons in the future?

It depends. Under the non-cumulative clause of LMIRT’s perpetuals, LMIRT is not under any obligation to pay any distribution that has not been paid in whole or in part. However, LMIRT has indicated that it intends to make an optional distribution of the full sum of the unpaid December 2020 distribution should it successfully complete its rights issue announced on 23 November 2020.

5. When will LMIRT complete its rights issue?

On 23 November 2020, LMIRT proposed to undertake a non-underwritten rights issue of up to 4,682,872,029 new units to raise gross proceeds of S$281.0mn. Expected date of issuance is 21 January 2021. Approval from LMIRT unitholders was obtained at an EGM held on 14 December 2020. To demonstrate its support for LMIRT and the rights issue, sponsor PT Lippo Karawaci Tbk has agreed to subscribe to 4,682,872,029 rights. This is the total number of rights units which will be issued.

6. When can perpetual bondholders expect distribution to resume?

Distribution can resume when conditions of the US$250mn 7.25% notes and the dividend stopper clause of the 6.6% perpetuals are met. Conditions of the US$ notes for the resumption of distribution are:

1) If the aggregate of distributable income less any distribution made to the holders of the perpetual securities and unitholders is greater than zero, or
2) Upon the maturity of the US$250mn 7.25% guaranteed senior notes in 2024, or
3) Upon the US$ noteholders’ consent, or
4) Upon new equity injections or rights issues.

Conditions for a lifting of the dividend stopper are:

1) A redemption of all outstanding 6.6% perpetual securities (next call date is 19 December 2022), or
2) Full payment of the next scheduled distribution, or
3) Full payment of an optional distribution equal to the amount of distribution that was unpaid in full or in part on 19 December 2020; or
4) Permission by an extraordinary resolution of the perpetual securityholders.

Distributions may resume upon completion of the Lippo Malls Indonesia Retail Trust rights issue on 21 January 2021. LMIRT has indicated that it intends to make an optional distribution of the full sum of the unpaid 19 December 2020 distribution using proceeds from its rights issue.

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