Corporate debt woes haunt foreign banks

Corporate debt woes haunt foreign banks

SINGAPORE (Reuters): Indonesia's massive $65 billion corporate debt mountain is now virtually impossible to pay off given the sharp drop in the value of the rupiah, analysts said.

"It's a nightmare. I think it would be helpful if the Indonesian government gave some leadership, some guidance," said Bill Belchere, head of fixed income and economic research at Merrill Lynch in Singapore.

The rupiah was quoted at a midpoint of 12,200 to the U.S. dollar Friday morning, representing a calamitous plunge of just over 80 percent since last July.

This means that companies that borrowed in U.S. dollars last year -- and did not hedge their liabilities -- have to find four times as much rupiah to service their loans.

This is proving virtually impossible for them.

Some analysts calculate that only around 25 firms of Indonesia's 225-odd quoted companies have more assets than liabilities.

Analysts say that in a country with typical bankruptcy laws -- which Indonesia lacks -- many of the firms would already have been forced into receivership by their lenders.

"We know the companies don't have the dollars and we know that some are offering to service their dollar debts with rupiah. But a lot of these firms are technically insolvent," said a regional analyst at a local bank in Singapore.

The analyst, who asked not to be identified, noted that so far, no one bank or group of banks, had expressed a willingness to take the lead in solving the Indonesian corporate debt problem.

"This is different to Korea where the debt is concentrated within a few borrowers and a few sectors," he said.

"There are loans all over the place in Indonesia. There's comfortably over a thousand different borrowers in sectors ranging from agriculture through the finance industry into the manufacturing sector," he added.

"Banks are really just going to have to deal with problem loans on a case-by-case basis. Some companies will fold, others can have their debt restructured, but it's down to the banks," he said.

In addition, he noted, the banks that had done the lending were just as diverse and were spread globally as was the actual debt structure -- from commercial loans to floating rate notes and fixed interest eurobonds.

"Sooner or later there's going to be a big debt write-off. Not at the national level but at the micro-level," he said.

The Indonesian government will not be riding to troubled companies' rescue with money.

"The government will not stay quiet but that does not mean there will be bail-outs," Indonesian Finance Minister Mar'ie Muhammad said on Wednesday.

Indonesian President Soeharto has also said the state will not bail out beleaguered firms.

But Merrill's Belchere said, "At some point they're (the government) going to have to intervene to salvage a reasonable part of the corporate economy."

Some analysts have said they expect Indonesia to impose capital controls to prevent the flow of dollars offshore.

This would, in effect, amount to a corporate debt moratorium.

But Goldman Sachs economist Don Hanna told a Singapore investment conference on Thursday he did not expect Indonesia to impose capital controls or a formal debt moratorium.

Analysts at Standard and Poor's MMS International said in a recent report they believed Indonesia would not declare a formal moratorium on debt. They said this was because there was already an effective moratorium in place in that companies either could not service their debt or could only service it in rupiah.

The analysts said it was unlikely that the Indonesian authorities would formalize this state of affairs.

Indonesian banking sources say the government and the International Monetary Fund, which has already put together a $43 billion rescue package for the country, are looking at ways of dealing with the private sector problem.

But the economist at the Singapore bank said he still felt it would be down to the individual banks.

"The banks have a lot of visits to a lot of borrowers to make. There's going to be some very tired bankers out there before too long," he said.