American financial services company Standard & Poor's warns that defaults by Indonesian companies are a serious threat over the next 18 months given their eroded balance sheets amid the country's current economic slowdown. The warning came after Indonesian mobile phone retailer Trikomsel Oke announced plans to restructure about USD $155 million worth of debt as it may not be capable to meet obligations indefinitely.
The company's total outstanding debt and loans rose to IDR 6.2 trillion (approx. USD $460 million) per 30 June 2015. Trikomsel Oke's high debt is partly the result of the slowing domestic economy hence causing weaker earnings and a weaker cash flow. Meanwhile, the weak rupiah has resulted in foreign exchange losses. The rupiah has been the second-worst performing Asian currency (after Malaysia's ringgit), depreciating 8.8 percent against the US dollar since the start of the year.
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
The debt includes two debentures (a debt instrument not secured by physical assets or collateral) denominated in Singapore dollars. Trikomsel Oke's Singapore-based subsidiary issued a bond on 10 May 2013 (due on 10 May 2016), with an annual interest rate of 5.25 percent, collecting 115 million Singapore dollars. It also sold 100 million Singapore dollars of 7.875 percent notes due in June 2017.
Trikomsel Oke, which hired FTI Consulting as adviser regarding its debt restructuring plans, will discuss the plans with note-holders on 26 October. A default on its Singapore bonds would be the first default of the company and the first default in Singapore's bond market since Celestial Nutrifoods Ltd and Sino-Environment Technology Group Ltd defaulted amid the crisis in 2009. In fact, a default in Singapore’s local currency corporate bond market is a rare phenomenon and therefore market participants will be paying close attention to the debt restructuring efforts of Trikomsel Oke in the coming weeks.
Indonesian credit rating agency Pemeringkat Efek Indonesia (Pefindo) cut Trikomsel Oke's corporate rating to 'BB+' (credit-watch with negative implication) from 'BBB' (stable outlook).
According to the latest data from Bank Indonesia, private sector foreign debt of Indonesian companies has reached a total of USD $169.2 billion in July 2015. This debt is mainly concentrated in the country's financial, manufacturing, mining, and electricity, gas & water supply sectors. Approximately 25 percent of this total private sector debt constitutes short-term debt.
Several Indonesian companies have been struggling to meet debt obligations due to the weak rupiah and the country's slowing economic growth pace (touching a six-year low of 4.67 percent in the second-quarter of 2015). Consumer spending in Indonesia has fallen due to high inflation and the relatively high interest rate environment, while unemployment has risen in Southeast Asia's largest economy.