Indonesian developer probe raises woes in Singapore bond market

Singapore dollar notes by First REIT and those sold by OUE have dropped amidst a liquidity crunch.

Bloomberg reports that Singapore’s bond market is suffering blows from an investigation launched into Riady family-backed Indonesian property developer PT Lippo Karawaci.

Singapore dollar-denominated notes issued by First REIT and those sold by OUE have dropped no thanks to a liquidity crunch that has raised concerns surrounding the company’s usage of external entities to shore up finances. Both companies are owned by the Riady family.

According to OCBC credit research analyst Wong Hong Wei, Lippo entities are also suspected of making acquisitions to support Lippo Karawaci. The developer sold its stake in First REIT’s management company to OUE and OUE Lippo Healthcare, in addition to the sale of a partial stake in First REIT to OUE Lippo Healthcare Ltd.

Fitch Ratings also downgraded Lippo Karawaci’s ratings this month on the back of weaker cash flow. It was hit by a bribery inquiry regarding deputy chairman James Riady, whose home was searched by officials in October.

Although Lippo Group is owned by the same family, its geographical separation between two brothers was a deliberate move to minimize family conflict, an OUE representative told Bloomberg.

The representative noted that Riady controls all business in Indonesia whilst his brother Stephen Riady controls OUE. “In our view, there is no impact on OUE’s bonds.”

Read the full report here.