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.