Indonesia regrets S&P's 'selective default' decision

JAKARTA (JP): The Indonesian government said on Tuesday it regretted the decision by Standard & Poor's to downgrade the country's foreign currency long-term sovereign credit rating to "selective default".

Bank Indonesia director Dono Iskandar Djojosubroto said in a statement on Tuesday the government had never defaulted on its commercial bank loans or bonds.

"Indonesia has remained current on all interest payments on these and other commercial loan obligations, and is fully committed to staying current on all commercial debt, including its US$400 million Yankee bond which matures in 2006, and its $300 million FRN (floating rate note) which matures in 2001."

He added: "Indonesia believes the balance of payment relief provided by ongoing Paris Club, bank and corporate debt restructuring, together with the structural economic reforms being implemented by the government, will provide the basis for a sustained recovery of the economy beginning later this year."

Dono said Indonesia initiated negotiations with its Paris Club creditor nations in August last year to restructure payments on $4.5 billion in bilateral debt maturing between August 1998 and March 2000.

He said that at that time the country was seeking to exclude its commercial obligations from any debt restructuring.

"However, Paris Club creditors' strict adherence to the principle of comparability of treatment between commercial and bilateral creditors made it necessary to seek a parallel restructuring on $210 million in principal payments due before March 2000 on a $350 million standby commercial loan," he said.

Downgrade

Standard & Poor's lowered its long-term foreign currency sovereign credit rating on Tuesday for Indonesia to selective default (SD) from a previously triple-C-plus.

The U.S.-based rating agency, however, affirmed its triple-C- plus senior unsecured ratings on Indonesia's US$400 million Yankee bond due August 2006 and its $300 million euro floating- rate note (FRN) due February 2001.

Indonesia's single-B-minus long-term local currency issuer credit rating is unaffected.

Standard & Poor's (S&P) said that the SD long-term foreign currency issuer credit rating reflects Indonesia's distressed rescheduling of $210 million worth of principal on a $350 million commercial loan, disbursed in 1994 by a syndicate of 70 banks led by Bank of Tokyo Mitsubishi.

According to an agreement signed on Sunday, new terms on the rescheduled portion of the loan are: * An interest rate of Libor plus seven-eighths, exactly the same as that in the original indenture; * A grace period to March 28, 2002, on which date the first rescheduled principal repayment, an amount of $6.3 million, will come due; and * A back-loaded, semiannual amortization profile from March 28, 2002, onward, culminating in a $39.9 million principal repayment on March 28, 2009.

The two final principal repayments in the original straight- line amortization profile, worth $70 million each, have not been rescheduled and come due March 28, 2002 and March 28, 2003, respectively.

The rating agency said in the aggregate, the effective maturity of the loan has been extended to 11.1 years, from seven years in the original agreement, while the interest rate has remained unchanged.

Such terms are less favorable to the creditors than the terms of the original issue, and, therefore, constitute a default under S&P's criteria, despite the fact that the affected creditors have not voted to declare an event of default, it said.

The rescheduling completes Indonesia's compliance with its Paris Club agreement signed last September, in which all $4.2 billion of principal repayment obligations to Paris Club bilateral creditors due between Aug. 6, 1998, and March 31, 2001, were restructured.

The Paris Club rescheduling is conditional upon comparable rescheduling of all commercial loans coming due during the consolidation period. Given Indonesia's amortization profile, the restructured 1994 syndicated loan is the only sovereign obligation captured by the burden-sharing stipulation. Neither the Yankee bond, nor the Euro FRN, comes due in the consolidation period, underscoring the likelihood that Indonesia's $426 million worth of rated debt will remain unaffected by the ongoing rescheduling effort, as will sovereign local currency obligations, it said.

The long-term foreign currency issuer credit rating will remain at SD pending a review of the documentation on the rescheduled syndicated loan. After the review, Indonesia's foreign currency issuer credit rating will be reset to a forward- looking assessment of the sovereign's general credit standing, the rating agency said. (rei/hen)