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)