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Jakarta Post

Indofood to hedge, convert foreign debts

  • Anggi M. Lubis

    The Jakarta Post

Jakarta   /   Sat, October 3, 2015   /  05:19 pm

Consumer goods giant PT Indofood Sukses Makmur plans to hedge and convert a sum of its foreign denominated loans later this year to comply with the central bank'€™s hedging regulation and to reduce financial costs.

Indofood, one of the world'€™s largest noodle makers, has a total of US$1.2 billion in foreign-denominated loans, the company'€™s director Werianty Setiawan says.

'€œNone of the loans have been hedged. We will hedge at least 20 percent of our net exposure in the fourth quarter,'€ she said.

'€œThe hedging is to comply with BI'€™s [Bank Indonesia] regulation.'€

Late last year, BI introduced a new regulation requiring all Indonesian companies planning to borrow dollars to have a specific health level in three indicators: liquidity strength, hedging ratio and credit rating level.

The rule came into effect in January 2015. Companies must hedge at least 20 percent of their short-term dollar debts and have a liquidity ratio of 50 percent.

The requirements will become stricter in 2016, when the hedging ratio will be increased to 25 percent, and the liquidity ratio will be higher at 70 percent.

The regulation was introduced as part of policies to reduce risks in domestic financial stability and to safeguard a rupiah that had been steadily depreciating against US dollars.

Besides the hedging, Indofood director Franciscus Welirang said the company also planned to convert some of its debts into rupiah, as the firm opted to take a more cautious stance against the US dollar.

The company'€™s total liabilities, according to its first half report, stood at Rp 50.76 trillion ($3.44 billion), whereas its current liabilities were Rp 27.71 trillion.

The company'€™s total equity, meanwhile, was $40.63 trillion by the end of June.

The company'€™s net profit dropped by 25.4 percent year-on-year (yoy) to Rp 1.73 trillion in the first half of this year from Rp 2.32 trillion last year, with most of the company'€™s units, except consumer-branded products (CBP), recording lower sales growth.

Indofood posted only a 3.7 percent increase in net sales to Rp 32.63 trillion in the first six months of this year from Rp 31.48 trillion over the same period of last year, according to its financial report published on Friday.

In addition to lower sales growth, Indofood'€™s earnings were also hit by rising foreign exchange (forex) losses caused by rupiah depreciation against the US dollar, the firm said in a statement.

The company'€™s first-half financial report showed that its financial expenses doubled from Rp 758.42 billion last year to Rp 1.48 trillion this year.

Janni Asman from Maybank Kim Eng Indonesia said in a published research note that currency depreciation was likely to increase cost pressures on Indofood'€™s CBP business as raw material and packaging prices and around 80 percent of its cost of goods sales were linked to the US dollar.

'€œWe believe the non-noodle businesses may have less flexibility in passing on the cost increase. We also foresee higher financing costs for Indofood alongside rupiah weakness, although the impact may be partially balanced by the positive translation of rupiah based revenues to agribusiness, assuming there are no further declines in CPO and rubber prices,'€ Janni.

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