Lippo to invest $10 billion in Asia in 5 yrs
SINGAPORE (Reuters) - Indonesian conglomerate Lippo Group said on Monday it is not deterred by a slowdown in Asian property markets and higher financing costs, and plans to invest $10 billion on projects and acquisitions over the next five years.
The group is targeting retail, residential, hospital and hotel projects, and also distressed property firms. It will allocate two-thirds of the funds to emerging markets like China and Indonesia, and the remainder in developed markets such as Hong Kong and Singapore.
"We're still very bullish about the market. This downturn is just part of the economic cycle, and a huge opportunity for us to expand in the next 1-2 years," Lippo Group President Stephen Riady said at the Reuters Global Real Estate Summit in Singapore.
He said the group is especially keen on rapidly modernizing Asian countries such as China and India, with their fast-growing middle-income earners eager for new homes and shopping malls.
"Just 10 percent of China and India is a population of 300 million, and that's going to be a new middle-income market, and its equivalent to a whole United States," Riady said.
Lippo is planning to fund its growth mainly from internal resources such as the sale of non-core assets and listing of real estate investment trusts (REITs), and will limit loans from banks as borrowing costs soar amid a global credit crunch, he said.
Riady said loans are now costing Lippo about 5 percent interest, 150 basis points more expensive than a year ago. The group is geared up to 30 percent and can raise its gearing up to 60 percent, he said, but prefers to be conservative in the current volatile market.
The Lippo Group currently has about 70 percent of its assets in Indonesia, where its listed units include Lippo Karawaci (LPKR.JK) and Lippo Cikarang (LPCK.JK), two satellite town developments near Jakarta with their own hospitals, universities, malls, housing, offices and even golf courses.
In April it sold off its stake in Singapore retailer Robinson to United Arab Emirates group Al Futtaim in a deal worth $409 million, and last year sold off its headquarters in Singapore, the Lippo Centre, for S$350 million to a joint venture between real estate funds managed by Credit Suisse and CLSA Capital Partners.
NEW REITs
Lippo has also spun off its assets through two Singapore-listed real estate investment trusts (REITS): First REIT (FRET.SI) backed by Lippo's Indonesian hospitals and Lippo-Mapletree Indonesia Retail Trust (LMRT.SI) backed by Indonesian shopping malls.
Despite a poor market for new REIT listings, Riady said the group will stick to plans to list three property trusts in Asia with assets worth $4 billion, and is in the process of preparing a pipeline of projects to be injected into the trusts.
"The preparation should take about a year, and by then the market should have improved. REITs are still a preferred investment class for many, like the pension funds," he said.
In the meantime, Lippo will delay the launch of its private residential projects in Singapore until next year, to wait out poor sentiment among homebuyers as private home sales in the first quarter fell to a five-year low.
"I'm not worried. It's an economic cycle, and a year later or two year's later, it will be up again. Now at this time, it's time to pick up, not the time to sell," Riady said.
He said Lippo is also eyeing the acquisition of small to mid-sized property firms, especially in the emerging markets, that have over-leveraged in the boom years and are starting to encounter financing trouble.
Riady said construction costs have risen for Lippo as much as 50 percent in the past year, with costs in Beijing for instance rising as much as 50 percent.
But he said land costs were coming down in some cases, more than offsetting higher construction costs.
(For summit blog: summitnotebook.reuters.com/)
(Editing by Kim Coghill)
