JAKARTA (TheInsiderStories) – Moody’s Investors Service says in a new report that the credit quality of Indonesian corporates is set to deteriorate amid the coronavirus, as the sharp economic downturn driven by a consumption shock along with low commodity prices pressure earnings across most sectors.
“We expect key financial metrics across our rated portfolio to weaken in 2020 before recovering gradually in 2021, although earnings will still be lower than in previous years,” says Stephanie Cheong, an analyst from Moody’s.
She continued, “Refinancing risk is increasing because around 42 percent of rated high-yield US Dollar bonds will mature by December 2022, the greatest risk will be faced by companies in the property and mining sectors.”
Aggregated earnings for rated Indonesian companies are set to decline around 20 percent in 2020 from 2019, and also remain around 10 percent below 2019 levels in 2021. Among the hardest hit are those in the property, mining, and oil and gas sectors, followed by textile.
Moody’s expects aggregated earnings for rated companies in the oil and gas, and mining and mining-services sectors will drop 30 – 35 percent in 2020 as demand contracts. While they should broadly recover in 2021, they are expected to remain 10 – 25 percent lower compared to 2019 earnings.
Meanwhile, companies in consumer-reliant sectors like property and textile will see aggregated earnings decline around 40 and 20 percent, respectively, on weak consumer sentiment. The fall is steepest at around 50 percent for property companies with retail and hospitality operations, such as PT Pakuwon Jati Tbk (IDX: PWON) (Ba2 stable) and Lippo Malls Indonesia Retail Trust (B1 negative).
And, higher palm oil prices will support producers’ earnings, operational bottlenecks and governance challenges will pressure the credit quality of PT Sawit Sumbermas Sarana Tbk (IDX: SSMS) (B3 negative), while slowing domestic consumption of palm oil products could temper PT Tunas Baru Lampung Tbk (IDX: TBLA) (Ba3 negative) earnings.
Finally, liquidity has weakened, with the Indonesia liquidity stress indicator (LSI) rising to a high of 53.6 percent in June 2020, concluded by Cheong.
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