Changes possible in RI firms' ratings: Moody

Changes possible in RI firms' ratings: Moody

HONG KONG (Reuters): Moody's Investors Service said it was uncertain how Indonesia's temporary freeze on foreign debt payments by the private sector would affect payment by specific companies and that further ratings changes could occur.

"The scope and implications of the temporary pause in servicing some private sector debt are still unclear and further rating adjustments could occur as the situation develops," Moody's said in a statement issued late on Friday.

Given the depreciation of the rupiah, many Indonesian companies were finding it increasingly difficult to service their significant foreign currency debt, Moody's said.

Moody's estimated the total foreign debt of the non-bank private sector at US$65-75 billion, a large proportion of which are short-term bank borrowings.

It said that sovereign credit quality was significantly higher than that of the Indonesian private sector. The risk of private firms defaulting on foreign currency obligations was therefore greater than any potential for default by the Indonesian government.

Indonesia on Tuesday said it had proposed a freeze on local companies' foreign debt repayments and announced a number of reforms in the banking sector.

Radius Prawiro, appointed by Indonesia's President Soeharto to oversee the country's foreign debt crisis, said a freeze on foreign debt servicing for distressed corporates would allow time to for new arrangements to be worked out between lenders and borrowers.

Pen Kent, a former executive director of the Bank of England who is assisting Prawiro, said a new steering committee of lenders would take some three months to collect all the necessary data although some companies could resume debt servicing before then.

The steering committee was expected to get down to work next week but analysts are worried negotiations could turn out to be a long drawn-out affair. One leading participant said the next meeting was expected to a establish a committee representing all nations with lenders exposed to Indonesia, whose total foreign debt burden is around US$140 billion.

Indonesian officials have stressed that companies which were still able to service debts should make the repayments.

Several local companies have been forced to suspend debt repayments in recent weeks, as the rupiah's 80 percent slide against the U.S. dollar since July has rendered a large part of corporate Indonesia technically insolvent.

U.S.-based Standard & Poor's said on Tuesday it was cutting the country's local and foreign currency debt rating again and that even more downgrades were possible.

S&P, which along with other rating agencies has already slashed Indonesian ratings this year, said it had cut the country's long-term foreign currency rating further to single-B from double-B and local currency rating to double-B-minus from triple-B.

It said another imminent downgrade could follow a review of the government's initiative to restructure the corporate sector's foreign currency obligations.

In particular, S&P said it was monitoring the potential costs to the government and wanted clarification of its policy toward public sector debt servicing.

Indonesia said it estimated some 228 companies in the country had problems debt servicing problems. Analysts have said most companies have stopped servicing debt since the beginning of the year, when the rupiah plunged below 10,000 to the dollar from the July level of 2,400.

All ratings companies, which assess the risk of corporate and sovereign debt defaults, have been criticized in recent months for not spotting the risks across Asia until it was too late for many investors.