Fitch: Rupiah Weakness Exposes Indonesian Companies to FX Mismatch

The recent fall of the Indonesian rupiah (IDR) will have a mixed impact on rated Indonesian industrial companies, with those with significant foreign currency mismatch most exposed according to Fitch Ratings. However, the credit rating agency (CRA) does not expect an immediate impact on the ratings.

Fitch says that the depreciation of the IDR 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 that Fitch sees as most exposed to the falling currency include Lippo Karawaci, Alam Sutera (ASR), Multipolar, Kawasan Industri Jababeka and Garuda Indonesia. This is due to mismatches between IDR-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 (USD), 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$200m in foreign currency debt, does not have any hedging in place for its USD exposure. However, it still maintains recent US$200m notes proceeds in original currency which Fitch expects will allow the company to manage its foreign exchange (FX) exposure comfortably in the near term. Nevertheless, a prolonged depreciating IDR 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. 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 Japfa Comfeed Indonesia and Fajar Surya Wisesa 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.

Berlina’s 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 IDR 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. Sinar Mas Agro Resources and Technology, Ivo Mas Tunggal and Sawit Mas Sejahtera are naturally hedged against FX fluctuation with USD-denominated earnings comfortably covering fertiliser costs and USD-denominated borrowings.

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