Obtaining credit harder after downgrade<\/p>\n
SINGAPORE (Reuters): Indonesia's latest credit rating
\ndowngrade signals concern going beyond its already battered
\ncorporate borrowers, economists said yesterday.<\/p>\n
U.S. rating agency Standard & Poor's (S&P) said on Friday it
\nhad cut its rating for the Republic of Indonesia's US$400 million
\nYankee bond due 2006 to triple-'C'-plus from single-'B'-minus.<\/p>\n
It made a similar cut in its long-term foreign currency credit
\nrating on the republic and lowered its long-term local currency
\nrating to single-'B'-minus from single-'B'-plus.<\/p>\n
The ratings remained on CreditWatch with negative
\nimplications, where they were placed on January 9, it said.<\/p>\n
\"The downgrades reflect Indonesia's deepening political
\ncrisis, which in turn is further eroding its ability to service
\npublic sector obligations,\" S&P said.<\/p>\n
\"S&P is just reflecting the reality of the deteriorating
\nsituation in Indonesia,\" said Andy Tan, Singapore general manager
\nat MMS, an affiliate of S&P.<\/p>\n
The announcement followed days of rioting across the sprawling
\narchipelago which left hundreds of people dead and scores of
\ncharred and ruined buildings in the capital Jakarta.<\/p>\n
S&P also cut its long-term foreign currency rating on
\ntelecommunications giant PT Satelit Palapa Indonesia (Satelindo)
\nto CCC-minus from B minus.<\/p>\n
A triple-'C' rating suggests a perceived possibility of
\ndefault. Timely repayment of the principal debt and the interest
\nis seen as dependent on favorable business, economic or financial
\nconditions.<\/p>\n
An S&P single-'B' indicates an investment risk and repayment
\nis not sufficiently protected against adverse changes in
\nconditions.<\/p>\n
Uncertainties related to the possibility President Soeharto
\nwould leave office, triggered by violent social unrest, have
\novershadowed progress towards macroeconomic stabilization, the
\nagency said.<\/p>\n
As a result, both the government's policy targets and the
\nexternal financial support linked to the International Monetary
\nFund (IMF) program are in jeopardy, it said.<\/p>\n
And if the government's ability to pay its dues is stretched,
\nthe security of Indonesia's $80 billion of corporate debt appears
\neven more dubious, analysts said.<\/p>\n
Many of Indonesia's large companies are now technically
\nbankrupt since the collapse in the Indonesian rupiah. The
\ncurrency has lost about three-quarters of its value since the
\nbeginning of the Asian financial crisis in July last year.<\/p>\n
Even before last week's downgrade, a lot of Indonesian debt
\npapers were rated well below \"investment grade\" -- ratings from
\ntriple-'A' to triple-'B'-- which is the grade at which it is safe
\nfor an institution holding investors' money to look.<\/p>\n
\"If you are an institution and you have any papers that are
\ntriple-'C', you shouldn't be holding them, because that means
\nthere is a serious risk of default,\" said Chia Woon Khien, head
\nof Asian research at SE Banken in Singapore.<\/p>\n
But she said some players in the debt market would still have
\nto sell Indonesian debt after the ratings cut.<\/p>\n
\"There will be dumping of anything Indonesian,\" she said.
\n\"There is a gray area between investment grade and junk bond
\nstatus, but these ratings are now as good as junk.\"<\/p>\n
Tan said he did not think the Indonesian economy or its
\nratings would recover any time soon. This meant it would be even
\nmore difficult for Indonesian companies to carry on their normal
\nbusiness -- which inevitably involves borrowing -- after the dust
\nhad settled.<\/p>\n
\"It would definitely make it much more difficult for
\nIndonesian companies to raise funds. But a lot of the Indonesian
\ncompanies have already gone below the investment grading,\" he
\nsaid. \"They have just gone from bad to worse.\"<\/p>",
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