JAKARTA (TheInsiderStories) – Global rating major Moody’s Investors Service says in a new report that most Indonesian companies will face negative credit conditions in 2020 amid slowing economic growth, commodity price weakness and increasing refinancing risk.

However, conditions will remain supportive for the infrastructure sector, given continued power demand and manageable capital spending by port operators.

“We expect slowing economic growth and weak prices for coal, palm oil, and petrochemicals to hurt the earnings of commodity companies in 2020,” Jacintha Poh, a Moody’s Vice President and Senior Credit Officer, said in a statement on Thursday (11/28).

“In addition, debt-funded capital spending and evolving regulatory risk, in particular for some coal miners given uncertainty around their mining license renewals, will constrain improvement in rated companies’ credit quality in 2020,” adds Poh.

However, most infrastructure issuers will maintain stable credit quality, given their established market positions and long-term contracts with availability-linked revenue, where they get paid in full regardless of product demand, as long as they can deliver the full contracted service.

Meanwhile, liquidity will tighten. Onshore banks are becoming more selective in lending to comparatively weak companies, and offshore investors remain risk-averse amid global macroeconomic uncertainties. Refinancing risk is increasing ahead of large US dollar debt maturities in 2021 and beyond.

Upside factors for Moody’s outlook on Indonesian non-financial companies include a recovery in commodity prices and an improvement in liquidity, particularly in offshore bond markets, so rated companies can pro-actively address refinancing needs in 2021 and 2020.

Industry outlooks reflect Moody’s view of fundamental business conditions for the industry over the next 12-18 months. Since outlooks represent Moody’s forward-looking view on business conditions that factor into its ratings, a negative (positive) outlook suggests that negative (positive) rating actions are more likely on average.

Moody’s rates 45 companies across Indonesia’s main corporate sectors. Although the proportion of rated companies with negative outlooks has been increasing since 2018, the majority of Indonesian rated companies have stable outlooks.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com