Obtaining credit harder after downgrade

Obtaining credit harder after downgrade

SINGAPORE (Reuters): Indonesia's latest credit rating
downgrade signals concern going beyond its already battered
corporate borrowers, economists said yesterday.

U.S. rating agency Standard & Poor's (S&P) said on Friday it
had cut its rating for the Republic of Indonesia's US$400 million
Yankee bond due 2006 to triple-'C'-plus from single-'B'-minus.

It made a similar cut in its long-term foreign currency credit
rating on the republic and lowered its long-term local currency
rating to single-'B'-minus from single-'B'-plus.

The ratings remained on CreditWatch with negative
implications, where they were placed on January 9, it said.

"The downgrades reflect Indonesia's deepening political
crisis, which in turn is further eroding its ability to service
public sector obligations," S&P said.

"S&P is just reflecting the reality of the deteriorating
situation in Indonesia," said Andy Tan, Singapore general manager
at MMS, an affiliate of S&P.

The announcement followed days of rioting across the sprawling
archipelago which left hundreds of people dead and scores of
charred and ruined buildings in the capital Jakarta.

S&P also cut its long-term foreign currency rating on
telecommunications giant PT Satelit Palapa Indonesia (Satelindo)
to CCC-minus from B minus.

A triple-'C' rating suggests a perceived possibility of
default. Timely repayment of the principal debt and the interest
is seen as dependent on favorable business, economic or financial
conditions.

An S&P single-'B' indicates an investment risk and repayment
is not sufficiently protected against adverse changes in
conditions.

Uncertainties related to the possibility President Soeharto
would leave office, triggered by violent social unrest, have
overshadowed progress towards macroeconomic stabilization, the
agency said.

As a result, both the government's policy targets and the
external financial support linked to the International Monetary
Fund (IMF) program are in jeopardy, it said.

And if the government's ability to pay its dues is stretched,
the security of Indonesia's $80 billion of corporate debt appears
even more dubious, analysts said.

Many of Indonesia's large companies are now technically
bankrupt since the collapse in the Indonesian rupiah. The
currency has lost about three-quarters of its value since the
beginning of the Asian financial crisis in July last year.

Even before last week's downgrade, a lot of Indonesian debt
papers were rated well below "investment grade" -- ratings from
triple-'A' to triple-'B'-- which is the grade at which it is safe
for an institution holding investors' money to look.

"If you are an institution and you have any papers that are
triple-'C', you shouldn't be holding them, because that means
there is a serious risk of default," said Chia Woon Khien, head
of Asian research at SE Banken in Singapore.

But she said some players in the debt market would still have
to sell Indonesian debt after the ratings cut.

"There will be dumping of anything Indonesian," she said.
"There is a gray area between investment grade and junk bond
status, but these ratings are now as good as junk."

Tan said he did not think the Indonesian economy or its
ratings would recover any time soon. This meant it would be even
more difficult for Indonesian companies to carry on their normal
business -- which inevitably involves borrowing -- after the dust
had settled.

"It would definitely make it much more difficult for
Indonesian companies to raise funds. But a lot of the Indonesian
companies have already gone below the investment grading," he
said. "They have just gone from bad to worse."