Indonesian Firms Now More Resilient to Rupiah Weakness, S&P Says

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(Bloomberg) — Indonesian companies are currently in better shape than in previous bouts of rupiah weakness, thanks to a more manageable debt load and a tempered rate of currency depreciation, according to S&P Global Ratings. 

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“We believe the Indonesian corporate sector is more resilient to depreciations in the rupiah than in previous depreciation cycles,” Xavier Jean, S&P senior director for corporate ratings in Singapore, said in an email interview last Friday. Financial leveraging has decreased from Covid highs and “domestic funding is more prevalent in the economy” as firms take advantage of lower bank rates to refinance in the local currency, he added.

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Focus is returning to the nation’s corporate sector after the rupiah hit a record low last month, stirring up memories of the Asian financial crisis, when a plunging currency left Indonesian companies struggling with debt. The rupiah’s recent weakness is gradual by comparison, S&P said, and a further 5% depreciation over the next year-and-a-half is unlikely to cause the same levels of disruption.

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“We don’t expect the weaker rupiah in isolation to be a driver of credit for the firms we currently rate,” Jean said. “The rupiah and other regional currencies have been slowly eroding for some time and we believe companies, customers and investors are getting used to them without triggering sharp risk-off sentiment.”

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To be sure, some Indonesian firms remain exposed to rupiah volatility and offshore bond market risks, particularly those with looming dollar debt maturity and high import reliance. They include real estate, airlines, and energy intensive sectors selling in the domestic market, according to S&P. 

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At the same time, a more gradual depreciation of the currency “leaves time for companies to adjust their cost base, pricing, and gives customers time to absorb higher costs,” Jean wrote.

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Issuance of dollar-denominated bonds was just over $2.3 billion last year, continuing to languish after hitting the lowest since the 2008 global financial crisis in 2023. Meanwhile, borrowers raising funds through domestic bonds rose to 143 trillion rupiah ($8.6 billion) in 2024 from less than 90 trillion rupiah in 2020, according to data compiled by Bloomberg.

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“While bond issuances in USD have slowed, liquidity and funding costs in the domestic banking system have improved substantially since 2022, reducing liquidity and refinancing risk,” he said. “For those keeping USD funding, we are also observing more prevalent currency hedging.”

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READ: Weak Rupiah to Pressure Companies With Looming Dollar Maturity: Fitch

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—With assistance from Harry Suhartono.

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