JAKARTA (TheInsiderStories) — Moody’s Investors Service says that credit conditions for Indonesian non-financial corporates will remain stable over the next 12 months.
“For 2019, we expect modest earnings growth of around 4 percent for our rated Indonesian corporates, despite headwinds from rising interest rates, the depreciation of the local currency against the US dollar, as well as political, social and economic risks ahead of national elections in April 2019,” says Jacintha Poh, a Moody’s Vice President and Senior Credit Officer.
Moody’s also says that as for credit quality, improvement for rated
companies will be constrained by their high debt-funded capital spending and the fact that these companies operate in an evolving regulatory environment.
“Leverage and interest coverage will weaken generally but within modest bounds, owing to higher debt levels and funding costs,” says Brian Grieser, a Moody’s Vice President and Senior Credit Officer.
He continued, “Refinancing risk remains manageable in 2019, but will build in 2021-2022, led by high-yield issuers in the mining and property sectors.”
Moody’s report says that for the oil & gas sector, large capital spending will result in higher leverage. Upstream earnings will be supported by healthy crude oil prices and production volume growth, but downstream losses from the fuel subsidy burden will continue to weigh on overall operating cash flow.
With the mining and mining services sectors, Moody’s says that earnings will contract in 2019, against the backdrop of Moody’s mid-point price assumption of $75 per ton for thermal coal. Earnings will be resilient because of a ramp-up in production volumes and stable demand.
As for property developers, Moody’s says that these companies’ credit metrics will weaken in 2018 and 2019, because Moody’s expectation of increased debt-funded capital spending, the higher cost of funding, and Rupiah depreciation, given the sector’s high portion of US dollar borrowings.
For the palm oil sector, companies with larger contributions from
upstream sales are most exposed to further declines in crude palm oil prices. Companies in the textiles sector will see revenues grow over the next 12-18 months, driven by strong demand and capacity expansions.
The telecommunications sector will see a slower revenue growth rate of 4 percent to 6 percent for 2018 and 2019, because revenue growth from data is unlikely to offset declines in revenue from voice and SMS services.
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