Standard & Poor’s on when Indonesian Companies Start to Default on Unhedged Debt
According to credit rating agency Standard & Poor’s (S&P), Indonesian companies will have difficulty to pay their (growing) overseas debt in case the rupiah will touch IDR 15,000 per US dollar. Particularly as most Indonesian companies have to face declining profit and revenue growth due to curbed domestic demand amid Indonesia’s economic slowdown.
Xavier Jean, credit analyst at Standard & Poor's, wrote in a statement (published on Thursday) that these Indonesian companies are “fighting the indirect effects of rupiah depreciation on their margins, balance sheet and liquidity - and that is a fight over which they have no control. While we do not expect a wave of corporate defaults in Indonesia, liquidity pressure and refinancing risks would undeniably build up for those companies that have unhedged foreign currency exposure in case the rupiah hits IDR 15,000 per US dollar and stays there." If the rupiah would stay at that level for at least three months, then Jean expects to see companies start to default on their unhedged debt.
Amid looming further monetary tightening in the USA and recent turmoil in China (the devaluation of the yuan), Indonesia’s rupiah has depreciated 15.1 percent so far in 2015 to IDR 14,322 per US dollar (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR). Meanwhile, Indonesia’s weak export performance, caused by sluggish global demand, has curbed the nation’s foreign exchange revenue.
Indonesian Rupiah versus US Dollar (JISDOR):
| Source: Bank IndonesiaWhen the rupiah was strong (in the years 2010-2013), these Indonesian companies took on considerable foreign debt at attractive interest rates. However, a significant portion of this foreign debt was (and still is) unhedged and thus vulnerable to currency shocks. Indonesia’s central bank (Bank Indonesia) only started to require private companies to hedge foreign debt from October 2014, leaving nearly 50 percent of Indonesia’s private sector foreign debt unhedged. Jean stated that in the years 2016-2018 a large chunk of this debt will mature. Rupiah depreciation would add to the debt burden of these companies and make it more difficult to refinance their debt position.
S&P said that the Indonesian companies that are most at risk are those companies engaged in the consumer goods, manufacturing, agribusiness, media, and retailing sectors.
Indonesia's Foreign Debt - 2015:
| 2015 | Public Debt |
Private Debt | Total Debt |
| January | $135.7 billion | $162.9 billion | $298.6 billion |
| February | $134.8 billion | $164.1 billion | $298.9 billion |
| March | $132.8 billion | $165.3 billion | $298.1 billion |
| April | $132.9 billion | $167.2 billion | $300.1 billion |
| May | $133.5 billion | $168.7 billion | $302.3 billion |
| June | $134.6 billion | $169.7 billion | $304.3 billion |
Indonesia's Foreign Debt - 2014:
| 2014 | Public Debt |
Private Debt | Total Debt |
| January | $127.9 billion | $141.4 billion | $269.3 billion |
| February | $129.0 billion | $143.1 billion | $272.1 billion |
| March | $130.5 billion | $146.0 billion | $276.5 billion |
| April | $131.0 billion | $145.6 billion | $276.6 billion |
| May | $132.2 billion | $151.5 billion | $283.7 billion |
| June | $131.7 billion | $153.2 billion | $284.9 billion |
| July | $134.2 billion | $156.4 billion | $290.6 billion |
| August | $134.2 billion | $156.2 billion | $290.4 billion |
| September | $132.9 billion | $159.3 billion | $292.3 billion |
| October | $133.2 billion | $161.3 billion | $294.5 billion |
| November | $133.9 billion | $160.5 billion | $294.4 billion |
| December | $129.7 billion | $162.8 billion | $292.6 billion |
Source: Bank Indonesia