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