IDR15,000 to US$1 rate could strain ratings on Indonesian companies, says S&P

JAKARTA - Tough operating conditions and a potential currency slide could increase the rating pressure on Indonesian companies, according ratings agency Standard & Poor's. "Indonesian companies are battling slow revenue and profit growth, oversupply, and growing debt levels," said S&P credit analyst Xavier Jean.

"But they are also fighting the indirect effects of the rupiah depreciation on their margins, balance sheet, and liquidity - and that's a fight over which they have no control."

The report says an exchange rate of Indonesian rupiah 15,000 Indonesian rupiah to US$1 for three to six months would be a potential pressure point for the debt-servicing capacity of Indonesian companies with unhedged foreign debts.

"While we don't expect a wave of corporate defaults domestically, liquidity
pressure and refinancing risks would undeniably build up for companies with unhedged foreign currency exposure if the rupiah hits 15,000 and stays there," Jean said.

“The Indonesian corporate sector capitalized on low funding costs and a relatively strong currency to grow its share of foreign currency borrowings between 2010 and 2013. That situation is now creating a maturity wall between 2016 and 2018.

“We estimate that a dozen companies in the rated universe alone are facing an aggregate of US$6 billion in foreign-currency bonds or bank loan repayment over the period. A further depreciation in the currency could make it more difficult to refinance at a reasonable cost.

"We are keenly watching the second half of 2016 for signs of more widespread financial distress in the Indonesian corporate sector."

He says downside risk to the credit quality of the Indonesian corporate sector is likely to persist over the next six to 12 months as GDP growth slows down and consumer sentiment remains soft. S&P forecasts that median revenue growth will remain almost flat for the 29 companies it rates in
Indonesia, compared with growth of 11% in 2014.

“The Government's efforts to shore up growth will also likely take several quarters to translate into improved consumer confidence and a pick-up in demand.” Meanwhile, the credit quality of companies in the consumer goods, agribusiness, manufacturing, media, and retailing sectors have been hard hit. www.standardandpoors.com (ATI).