Rating the debtors<\/p>\n
Credit Rating Indonesia Ltd., which was set up early this year, is
\nexpected to begin operating soon after the recent issuance of two
\nregulations on the role, function and operational mechanism of rating
\ninstitutions in the capital market. Credit rating and research has
\nindeed become a much-needed service in the capital market due to the
\nincreasing popularity of debt instruments as a source of fresh funds for
\ninvestments.<\/p>\n
One may argue that demand for rating is not so urgent yet because
\ndomestic investors have never experienced actual credit losses on debt
\nsecurities. But since the cumulative amount of rupiah bonds issued
\nthrough the Jakarta Stock Exchange has exceeded Rp 5.05 trillion (US$2.3
\nbillion), not including another Rp 500 billion to be floated by the
\nState Electricity Company later this month, a credit rating agency is
\nreally needed to help investors to manage the risks of their investments
\nin bonds and to promote a bond secondary market, which is virtually non-
\nexistent at the moment.<\/p>\n
Judging from the tough requirements imposed by the Capital Market
\nSupervisory Agency (Bapepam) on the credit rating agency, we feel
\nassured that Credit Rating Indonesia Ltd., locally known by its acronym,
\n\"Pefindo\", will likely be able to provide credit assessment with the
\nquality, reliability and credibility needed both by debtors and
\ninvestors.<\/p>\n
Bapepam has ruled that a credit rating agency must be objective,
\nindependent and professional in its credit assessment and must make the
\nmethod of its assessment transparent. Obviously, a credit rating agency
\nmust have the freedom to express its opinion on the issuers of debt
\ninstruments. Within the Indonesian business scheme of things, such
\nindependence is very crucial. Past experiences have shown that the
\npolitical connections of a company often blunt the professional
\njudgment of bankers or auditors.<\/p>\n
Transparency also is vital for enabling issuers of debt instruments
\nto know exactly how their credibility is assessed. Investors, too,
\nshould understand how the rating system operates in order to be able to
\nunderstand and consequently to react appropriately to the rating
\nagency's opinions.<\/p>\n
A note of caution is in order here. Investors should be informed that
\na rating is an opinion which measures the risk that a given issuer of
\ndebt instruments may default on the payment of the principal or interest
\nover the life of the rated instruments. Ratings serve as a form of
\nprotection for the investors, but the ratings should not be mistaken for
\na guarantee against losses. What is sure is that the ratings will be
\ngreatly helpful for investors in managing potential risks.<\/p>\n
We reckon that Pefindo, which is owned jointly by several state
\nbanks, pension funds, the Jakarta and Surabaya stock exchanges and a
\nsecurities company, will cooperate with a foreign credit rating agency
\nfor at least the first few years to improve the skills of its staff and
\nto establish its credibility among foreign investors.<\/p>\n
For sure, Pefindo will contribute to the development of a better
\ncredit information system in Indonesia. Investors will be helped to
\nbetter manage their investment risks. The ratings will also help issuers
\nof debt instruments to attract more investors and will secure them
\nbetter access to cheaper capital and lower borrowing costs.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/rating-the-debtors-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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