S&P sees weaker finances for Indonesian real estate, state firms

JAKARTA: S&P Global Ratings warned yesterday that the finances of Indonesian real estate developers and state firms might deteriorate in 2019 due to risks rooted in general elections and further depreciation for the rupiah.

Analysts with the rating agency told a media webcast that they do not expect a wave of defaults like ones seen in past financial crises. But they said there are sectors with pockets of weakness that may fare worse with the rupiah expected to weaken next year.

The agency also cut its 2019 gross domestic product (GDP) growth outlook to slightly above 5% from 5.5%, citing expectations of higher inflation and tighter monetary policy.

In recent weeks, the rupiah has pared some of its 2018 losses, but it is still down about 7% against the dollar.

Xavier Jean, S&P senior director of corporate ratings, said there will be some sectors “where you could see some defaults, real estate being one” and also cautioned about manufacturing and consumer companies with most inputs priced in dollars.

Credit risks were building for nearly US$15 billion (RM63 billion) in debt with currency mismatch for listed companies in the real estate, transport and manufacturing sectors plus some individual issuers in other sectors, S&P said.

Indonesia will have parliamentary and presidential elections in April. That is making things harder for real estate developers, Jean said, as some potential property buyers are now taking the kind of wait-and-see approach seen during previous Indonesian election cycles.

President Joko Widodo slapped price controls on key commodities, including fuel and electricity, in March in what analysts said was a pre-election shift towards more populist policies, though officials maintain these were imposed to keep the inflation rate stable.

Such price controls hurt the balance sheets of state firms whose finances have already weakened due to extensive borrowing to match the government’s aggressive infrastructure plan, S&P said.

The agency estimated that controls on pump-prices means that state energy firm Pertamina has to “absorb lost profits” that S&P estimates at US$1.5 billionUS$2 billion in 2018.

S&P expects the government to keep the measures in place until at least mid-2019, though these may then might be lifted due to pressure on state companies’ balance sheets.

But once lifted, inflation will likely jump, affecting household spending and economic growth, S&P said, noting that Bank Indonesia may raise interest rates even more. Since May, the central bank has raised interest rates six times by a total of 175 basis points. – Reuters