S&P flip-flops on RI foreign currency rating downgrade
S&P flip-flops on RI foreign currency rating downgrade
JAKARTA (JP): U.S. rating agency Standard and Poor's hurriedly
restored Indonesia's long-term foreign currency rating on
Wednesday, just one day after its downgrade was protested by the
central bank.
It announced it "reset" the rating from "Selective Default"
(SD) to "Triple-C-Plus".
"The restitution of the long-term foreign currency issuer
credit rating to 'Triple-C-Plus' from 'SD', one day after
Standard and Poor's downgrade to 'SD', reflects Indonesia closure
of a distressed rescheduling of US$210 million of principal on
the rated $350 million syndicated loan," it said.
On Tuesday, the agency said the rescheduling of the $310
million loan disbursed in 1994 by a syndicate of 70 banks, now
led by Japan's Bank of Tokyo-Mitsubishi Ltd, qualified it for the
selective default rating.
On Wednesday, however, it said that all 70 of the affected
creditor banks "have, via powers of attorney, signed the
rescheduling amendment, which now supersedes the original
indenture and is enshrined in law.
"Therefore Indonesia's sovereign default is cured, removing an
obstacle to the rescheduling of $4.2 billion of principal-
repayment obligations to Paris Club bilateral creditors due
between August 6, 1998, and March 31, 2001".
In protesting the downgrade, Bank Indonesia said late Tuesday
the government had never defaulted on its commercial bank loans
or bonds.
BI director Dono Iskandar Djojosubroto said the country
remained current on all interest payments on its obligations and
was fully committed to staying current on all commercial debt,
including its $400 million Yankee bond maturing in 2006, and its
$300 million floating rate notes maturing in 2001.
The selective default rating applies when a country has
selectively defaulted on an issue or class of obligations, but
will continue to make timely payments on its other obligations.
The Triple-C rating denotes a situation in which a country is
"currently vulnerable to nonpayment" and is dependent on economic
conditions to repay debt.
Standard and Poor's reaffirmed on Wednesday Indonesia's "B"
long-term local currency issuer credit rating and assigned "C"
short-term foreign and local currency credit ratings to
Indonesia. "The outlook is now stable."
The agency said the ratings and stable outlook reflected the
restoration of monetary discipline, the stabilization of the
near-term international liquidity position and ongoing efforts to
restructure and recapitalize the banking system.
But the ratings are constrained by a devastated corporate
sector, which owes about $62 billion to foreign creditors, and
ongoing political uncertainty.
"The planned four-month period between parliamentary and
presidential elections later this year augurs a policy hiatus,
and could be followed by a new administration with a weaker
commitment to honoring sovereign debt obligation.
"Moreover, prolonged fiscal stresses could prompt a new
government to seek additional Paris Club bilateral debt
rescheduling, an initiative that could trigger defaults on rated
debt under burden sharing stipulations.
Standard and Poor's said actions on Indonesia's sovereign
foreign currency rating did not impact its ratings on the
country's corporate issuers.
"Ratings of all Indonesian corporates remain on CreditWatch
with negative implications."
According to Standard and Poor's, CreditWatch highlights an
emerging situation which could materially affect the profile of a
rated corporation and can be designated as positive, developing
or negative.
The agency said it would continue to "closely monitor the
credit impact of the crisis, and will update ratings as business
and financial events affecting credit quality emerge". (rid)