Legal uncertainty main snag: S&P
Legal uncertainty main snag: S&P
Urip Hudiono, The Jakarta Post/Jakarta
Despite improving interest rates and a peaceful election year,
legal uncertainties remain the main obstacle for Indonesian firms
in obtaining business finance, a report from global rating agency
Standard and Poor's (S&P) said.
S&P director for corporate finance ratings, Greg Pau, said
that there were at least three major challenges for corporations
in the country, which could affect their businesses and therefore
their ratings in the eyes of creditors.
"They are regulatory, law enforcement, and counterparty risks,
causing investor confidence to remain fragile," Pau said on
Thursday, during the launching of the report.
The report, made jointly with PT Pemeringkat Efek Indonesia
(Pefindo), assessed the challenges and opportunities for 25
prominent players in the country's key industries.
Among the companies that S&P had rated as the country's best
in terms of their business and financial profiles, were state-
owned telecommunications company PT Telkom and cellular company
PT Telkomsel -- both receiving a B+ rating with a positive
outlook.
Indonesia's sovereign credit ratings currently stand at
B/Positive/B for foreign currency, and B+/Positive/B for local
currency.
An S&P "B" rating means that a company or country is more
vulnerable to adverse business, financial and economic conditions
but currently has the capacity to meet financial commitments.
Explaining the regulatory risks, Pau took an example of the
government's previous policy to restrict exports of palm oil,
which had caused companies in the sector to be deprived of much
needed foreign currencies to service their debts.
Uncertainty in the country's legal system, meanwhile, was
shown in last year's controversial defaulting of insurance
company PT Asuransi Jiwa Manulife, and the revision of toll road
firm PT Citra Marga Nusaphala Persada's revenue share agreement
with the government.
"Several companies also face counterparty risks as their sales
are limited to certain buyers, while the buyers themselves are in
a weak financial position," Pau said.
"The government's fiscal consolidation efforts by boosting tax
revenues and reducing fuel subsidies could also eat into consumer
spending power, thus affecting company sales and revenues."
Despite all the factors limiting the country's companies to do
business and obtain loans, Pefindo director Eva M. Nuis said that
they could still promote their strong points to get loans from
banks, which she said would remain the major contributor to
corporate financing in the future.
"Even small and medium enterprises could take advantage as
more banks become interested in retail credit," she said.
"Companies could also look into the promising domestic and
international bond markets to finance their businesses."
Data compiled by S&P shows that bank credits to corporates
amount to Rp 505 trillion (US$56.1 billion) as of September 2004.
Corporate domestic bonds currently amount to Rp 55 trillion,
while international bonds stand at Rp 49 trillion -- both of
which are dominated by bonds from financially sound banks and
telecommunication firms.
"This fact shows that investors are interested in prospective
companies which do business in sectors where regulations are
already clear," Pau said.
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Standard & Poor's Top 25 Indonesian Corporates:
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1. PT Aneka Tambang
2. PT Astra Agro Lestari
3. PT Astra International
4. PT Berlian Laju Tanker
5. PT Citra Marga Nusaphala Persada
6. PT Excelcomindo Pratama
7. PT Gudang Garam
8. PT Hanjaya Mandala Sampoerna
9. PT Indocement Tunggal Prakarsa
10. PT Indofood Sukses Makmur
11. PT Indonesian Satellite Corp.
12. PT Jasa Marga
13. PT Kaltim Prima Coal
14. PT Matahari Putra Prima
15. PT Medco Energi International
16. MGTI Finance Co. Ltd.
17. Paiton Energy Funding BV
18. PT Perkebunan Nusantara III
19. PT Perkebunan Nusantara V
20. PT Perusahaan Gas Negara
21. PT Perusahaan Listrik Negara
22. PT Pupuk Kalimantan Timur
23. PT Tambang Batubara Bukit Asam
24. PT Telekomunikasi Indonesia
25. PT Telekomunikasi Selular
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Source: Standard & Poor's
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