Riady Family Leads $1B Rights Issue for Lippo Development Unit After Bribery Scandal

Indonesia’s Lippo Karawaci has secured $1.01 billion in new funding, as the real estate development division of the 69-year-old conglomerate seeks to revitalise its business.

Lippo, which is controlled by Indonesia’s billonaire Riady family, has teamed the recapitalisation with a revamp of its leadership team, naming the founder’s grandson, 34-year-old John Riady, as the new CEO of the property development business, and vowing to re-focus on its core competencies, according to a company announcement.

The Indonesian developer is raising its fresh cash through a rights issue, which has already attracted investment from Hong Kong’s Chow Tai Fook, as well as from the CEO of private equity firm Farallon Capital Asia.

Riady Family Commits Cash to Developer

The Riady family, led by patriarch Mochtar Riady, who founded Lippo in 1950, is underwriting the rights issue themselves to the amount of $730 million, with another $280 million coming from asset sales, including the $260 million sale of the company’s Puri Mall in West Jakarta to Lippo Malls Indonesia Retail Trust.

Upon being annointed CEO of Lippo Karawaci, John Riady said in the statement that the rights issue shows “our family believes in Lippo.”  The younger Riady, whose family ancestors came from China’s Fujian province, added that new management and a fresh board introduced as part of the revamp would aim to “bring transparency and good corporate governance,” to the family controlled business.

The change in leadership comes just less than six months after Indonesia’s anti-corruption agency raided 12 locations associated with the Lippo group, including the home of John Riady’s father, James Riady. The raids were part of a bribery investigation into the $21 billion Meikarta property project being developed by Lippo Karawaci.

In addition to the Riady family’s own commitments to the fund-raising, the company was joined in the rights issue by Hong Kong conglomerate Chow Tai Fook, which is controlled by the same Cheng family which holds a majority stake in the New World Group, as well as by George Raymond Zage III, the former CEO of private equity firm Farallon Capital Asia and the founder of Tiga Investments. Together the two investors are undertaking to purchase $70 million in shares..

Paying Down Debts and Planning New Investments

The funding “will solve our liquidity problems and greatly strengthen our balance sheet” as the company re-focuses its strategy on “housing, malls and healthcare,” John Riady told Reuters in an interview.

The capital is set to prop up Lippo Karawaci’s balance sheet through repayment of up to $275 million of debt obligations, and by providing the developer with a liquidity buffer of around $290 million to pay debt interest and meet REIT rental obligations through year end 2020.

The company also plans to put around $100 million of the capital into fresh investments in existing key projects over the next three years.

In addition to Riady’s new role as CEO, the Indonesia-listed company introduced Surya Tatang as chief financial officer and Peter Yu as director of projects.

Getting Past That Bribery Thing

Following the announcement of the rights issue on Tuesday, John Riady who holds an MBA from the Wharton School of Business and a law degree from Columbia University Law School said, “What is sure is that the Meikarta development will be 100 percent completed,” according to media reports.

Touted as the “Shenzhen of Indonesia,” the Meikarta project, which was 54 percent owned by Lippo Karawaci at this time last year, ran into problems in October when investigators arrested nine people for bribery over land permits related to Meikarta, including a top district government official and a company director.

Despite the controversy, no Lippo companies were accused of wrongdoing in the investigation. Lippo Karawaci now owns 49 percent of Meikarta through its principal subsidiary Lippo Cikarang.