DCR downgrades the ratings of Indonesian corporates
DCR downgrades the ratings of Indonesian corporates
HONG KONG (Reuters): Duff & Phelps Credit Rating Co. (DCR) has downgraded the ratings of several Indonesian entities and securities and reaffirmed its ratings on several Indonesian structured transactions. All the ratings remain on Rating Watch - Down.
The rating downgrades and the continuation of Rating Watch - Down status reflect the deteriorating creditworthiness of Indonesia and the implications this holds for private-sector entities in the country.
The loss of confidence in economic policy has persisted in spite of policy actions taken in recent weeks to shore up the banking sector and liberalize the economy.
As a result, the Indonesian currency (rupiah) has lost two- thirds of its pre-crisis value, though it has rallied from lows last month on the expectation that the government will adopt a currency board exchange rate arrangement.
"DCR believes that such a move could be premature, given the current weakness of the banking sector and bank supervision, as well as an international reserve position as low as one-half the level of short- term external debt."
Economic policy credibility has been buffeted by political uncertainty as well. The composition of the next government, to be formed after next month's presidential election, is in doubt as President Soeharto remains under pressure amid social unrest and demands for greater political liberalization.
The government-led suspension of external debt servicing by private companies, in conjunction with press reports of public- enterprise defaults on suppliers contracts, has raised concerns about the public sectors willingness to maintain timely debt service going forward.
In addition, the public-sector debt burden, which at the current exchange rate could represent more than 70 percent of GDP, up from approximately 35 percent at year-end 1996, could rise substantially as a result of the governments guarantee of banking-sector liabilities.
"Nevertheless, DCR believes that Indonesia will maintain timely debt service on its sovereign obligations, given that official creditor support, underscored by the IMF's US$43 billion financing package, remains intact."
However, given the dynamic nature of Indonesian financial crisis, DCR will continue to monitor the situation on a day-to- day basis and may take further rating action.
The structural integrity of the asset-backed transactions listed above remains consistent with a B (Double-B) level of credit risk.
Principally, in-place swap agreements partially mitigate currency risk and exchange control risk. In addition, the excess spread (net interest margin less defaults, less expenses), while declining, remains at acceptable levels.
Finally, credit enhancements, including limited guarantees, escrow accounts and subordination, add substantial cushion to offset the likelihood of a loss in the event of default.
The structures are further supported by financial covenants and various early amortization and other triggers for the benefit of the investors.
The rating changes are given below:
Issuer/Transaction Previous Current
PT Bank International Indonesia
Foreign Currency (sr. unsec.) BB B
Local Currency (sr. unsec.) BB BB-
PT BII Trust Certificates
Credit Card Receivables BB BB-
PT Polysindo Eka Perkasa
Senior Notes B- CCC
Polysindo International Finance
Guaranteed Secured Notes B- CCC
PT Inti Indorayon Utama
Senior Notes B- CCC
Tri Polyta Finance B.V.
Senior Notes B- CCC
DCR has reaffirmed the ratings of the following asset-backed transactions:
PT Bunas Finance TBK
Auto Loan Receivables BB
PT Citimas Capital Indonesia
Credit Card Receivables BB
PT Daiwa Asia Credit Card Ltd., N.V.
Credit Card Receivables Class A BB+
PT Daiwa Asia Credit Card Ltd., N.V.
Credit Card Receivables Class B BB