Rupiah Fall Exposes Indonesian Companies with Foreign Currency Mismatch, Says Fitch

Fitch Ratings says the recent fall of the Indonesian rupiah will have a mixed impact on rated Indonesian industrial companies, with those with significant foreign currency mismatch most exposed. However, the agency does not expect an immediate impact on the ratings.

 

The depreciation of the Indonesian rupiah by about 14% in the year to date will result in a tougher operating environment for companies with significant foreign currency mismatch. However, for most of Fitch-rated diversified manufacturing companies they have the flexibility to pass on costs increases due to their leading market positions. Additionally, companies have completed most of their debt-funding activities in H113 and extended their debt maturity, limiting immediate refinancing risks.

 

Companies which are most exposed to the falling rupiah include PT Lippo Karawaci Tbk (Lippo, BB-/ A+(idn) / Stable), PT Alam Sutera Tbk (ASRI, B+/ Stable), PT Multipolar Tbk (Multipolar, B+/ Stable), PT Kawasan Industri Jababeka Tbk (Jababeka, B+/ Stable) and PT Garuda Indonesia Tbk (Garuda, A(idn)/ Stable).

 

This is due to mismatches between rupiah-denominated earnings and foreign currency-denominated debt. However, Fitch expects these companies will be able to contain foreign exchange losses over the next 12 months and hence does not expect immediate impact to their ratings.

 

Lippo and ASRI, whose debt is predominantly in US dollars, have hedged at least 80% their USD borrowings and both have comfortable margin buffers to absorb short-term impact from foreign exchange losses.

 

Multipolar, which has about US$200 million in foreign currency debt, does not have any hedging in place for its USD exposure. However, it still maintains recent US$200 million notes proceeds in original currency which Fitch expects will allow the company to manage its foreign exchange exposure comfortably in the near term. Nevertheless, a prolonged depreciating rupiah may heighten negative pressures on their ratings.

 

Garuda has about 20% of its foreign currency requirements unhedged. The company's market leadership in the domestic full-service carrier (FSC) market, however, provides it with the flexibility to pass on cost increases and foreign currency fluctuations, especially onto corporate passengers.

 

Jababeka, which has 84% of total debt in USD, will benefit from a natural hedge provided by a recently commissioned power plant. The power plant has a long-term USD-denominated off-take agreement with state-owned electricity company (PLN, BBB-/ Stable).

 

Fitch expects recurring cashflows from the power plant to sufficiently cover Jababeka's interest expense over the short- to medium-term, limiting the impact from foreign currency fluctuations.

 

Fitch expects PT Japfa Comfeed Indonesia Tbk (Japfa, BB-/A+(idn)/ Stable) and PT Fajar Surya Wisesa Tbk (Fajar, B+/ A(idn) / Stable) will be able to pass on foreign currency fluctuations to their customers due to their strong market positions. Japfa and Fajar maintain about two months of inventory and have demonstrated an ability to adjust selling prices to reflect increasing production costs.

 

PT Berlina Tbk's (A-(idn)/Stable) pricing arrangements and established relationships with its customers would likewise allow it to continue to pass on foreign exchange fluctuations. This will offset the impact of exchange rates on its raw material costs as well as its foreign currency-denominated debt, which makes up over 40% of its bank borrowings.

 

Palm oil producers are likely to benefit from a depreciating rupiah as the selling price of their product is quoted in USD. This to some extent also compensates the effect from low crude palm oil prices.

 

PT Sinar Mas Agro Resources and Technology Tbk (AA(idn)/ Positive), PT Ivo Mas Tunggal (AA(idn)/ Positive), and PT Sawit Mas Sejahtera (AA(idn)/ Positive) are naturally hedged against foreign exchange fluctuation with USD-denominated earnings comfortably covering fertiliser costs and USD-denominated borrowings.
 

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