TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Local firms face tough times ahead
Companies with high exposure to foreign borrowings and import financing are bracing for tough times ahead as the collapse of the rupiah to below their worst scenario level will further impact their already weak businesses
Change Size
C
ompanies with high exposure to foreign borrowings and import financing are bracing for tough times ahead as the collapse of the rupiah to below their worst scenario level will further impact their already weak businesses.
With the collapse of the Indonesian currency, local companies would not only have to cope with weak sales but also more expensive financing for their imports and offshore borrowings, analysts and business players said.
Bank Central Asia (BCA) economist David Sumual said companies involved in property, construction and telecommunications would feel the biggest impact from the weak rupiah because the larger part of their revenues were in the local currency.
'There will certainly be impacts for some companies that have big exposure to foreign debts while their revenues are mostly rupiah-based,' David said on Tuesday.
David said these companies were currently struggling with weak sales as the slower than expected growth in the economy had begun to reduce demand. Some of the companies had prepared for the possible impact of the volatile rupiah by hedging their offshore financing needs, he said. But this might not be enough because the rupiah fell well below their worst-case scenario of between 12,000 and 13,000 per US dollar, he added.
The rupiah passed the significant 14,000-mark against the US dollar for the first time since the 1998 financial crisis on Monday.
Publicly listed telecommunications firm Indosat could be among those that made the right move when it bought back all of its US$650 million-bonds, which mature in 2020, in July, to reduce the currency risks.
The corporate action has helped the company reduce its US dollar debt portion, which accounted for around half of its total liabilities as of last year, Indosat spokesman Andromeda H. Tristanto said.
BCA's David said unlike bigger companies, smaller firms would suffer most from the rupiah fall, because only a few of them had hedging facilities. However, David said the current situation of corporate debts in foreign currency was an improvement from the 2008 financial crisis when many companies announced defaults on their debts.
'Our big clients have said that they had foreseen worsening conditions when the rupiah dipped to Rp 12,000. Moreover, there is a tighter central bank regulation on hedging,' David said.
Last year, Bank Indonesia (BI) issued a regulation on offshore borrowings that requires companies to have hedged at least 20 percent of their short-term dollar debts by the end of 2015 and 25 percent by the end of 2016.
The central bank's hedging policy had led to a situation where currency mismatch risks among non-bank corporations were more manageable now, DBS Group Research team said in its Monday report.
According to BI's latest data released in March, private sector external debts grew 13.6 percent year-on-year in January to hit $162.9 billion, lower growth than the 14.2 percent in December, 14.7 percent in November and 15.4 percent in October.
Private sector debts account for more than half of Indonesia's total external debt position of $298.6 billion, with the rest being public debts in the form of government bonds and state loans.
'As the country's economy slowed, there were more [foreign] debt repayments rather than withdrawals, because companies saw that they didn't need a lot of funding,' Hendy Sulistiowati, BI's executive director of statistics, said recently.
Meanwhile, the domestic automotive industry, which relies heavily on imported raw materials, expects government and central bank measures to stabilize the rupiah as ongoing depreciation has created losses in their financial performances and sales drops.
'Around 60-70 percent of our raw materials are imported and depreciation has created losses in the first half. The quick fall of the rupiah may complicate budget calculations, so we hope the currency stabilizes again,' Made Kusumawati, head of investor relations and corporate secretary of Astra Otoparts, said.
Sudirman M. Rusdi, chairman of the Association of Indonesian Automotive Manufacturers (Gaikindo), voiced a similar concern that with depreciation the large proportion of imported components in the auto industry added an extra burden when car makers were unable to increase prices and forced to offer discounts as sales weakened.
