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.
----------------------------------------------- Standard & Poor's Top 25 Indonesian Corporates: ----------------------------------------------- 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 ----------------------------------------------- Source: Standard & Poor's -----------------------------------------------