PT Lippo Karawaci, the Indonesian property developer controlled by South-east Asia’s billionaire Riady family, has been the subject of a bribery inquiry, sending jitters reverberating through the Singapore dollar bond market. Last month, the Indonesian home of Lippo Group’s deputy chairman James Riady was searched by anti-graft officials as part of government investigations.

As a result, the Singapore dollar-denominated notes issued by First Real Estate Investment Trust, and those sold by OUE Ltd, controlled by the family, have suffered as weakening credit profiles and a liquidity crunch prompted concerns that the Group would use other entities to boost finances. Bonds of Lippo Malls Indonesia Retail Trust, also sponsored by Lippo Karawaci, have come under pressure as well.

Earlier this month, Fitch Ratings cut Lippo Karawaci’s long-term foreign and local currency issuer default ratings by two notches as well as subsidiary Theta Capital’s USD bonds to CCC+ from B, citing liquidity risks as a result of uncertainty over asset sales, on which Lippo has been increasingly reliant to service debt obligations. Fitch expects that the property developer’s credit profile could weaken further if the bribery case results in a large financial liability. Lippo Karawaci has been downgraded by Moody’s three times in the past 18 months on mounting concerns over the property group’s financial robustness. The issuer has outstanding a US$75 million unsecured bond due in June 2020, a US$410 million bond due in 2022 and a US$425 million bond due in 2026.

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