U.S. Fed gives Indonesia a brief respite from debt pain

By Saeed Azhar and Janeman Latul

SINGAPORE/JAKARTA (Reuters) - The U.S. Federal Reserve has given Indonesian companies an unexpected window of opportunity to refinance a foreign debt burden that has nearly doubled to $134 billion since 2008.

The borrowing binge was a product of Indonesia's strong economic growth and record-low global interest rates. But Southeast Asia's largest economy was hit hard in an emerging market selloff this year as investors prepared for a slowdown in the U.S. central bank's purchases of government debt.

The rupiah is down 15 percent this year, pinching companies that issue U.S. dollar-denominated debt but earn their revenue in rupiah. Data from Indonesia's central bank shows that 89 percent of its corporate debt is denominated in U.S. dollars.

As the currency slides, debt servicing costs rise. Indonesia's central bank has raised its benchmark interest rates by 150 basis points to 7.25 percent this year to try to stem the currency decline, threatening economic growth.

The Fed's surprise decision last week to maintain a policy of buying $85 billion in bonds a month until the U.S. economy strengthens sent investors back into emerging markets.

But the reprieve may be short-lived.

"Uncertainty around the timing of an inevitable Fed tapering will no doubt return," said Philipp Lotter, a Singapore-based managing director of corporate finance with credit ratings agency Moody's.

"The bigger concern is around some of the bigger importers and those that have dollar debt coming due over the near term," he said. "Interest rates in Indonesia are rising, and this could have a knock-on effect on Indonesian growth."

The pockets of pain are concentrated in the resources and transportation sectors, where a downturn in the global commodities cycle and drop in shipping rates weigh heavily.

A Reuters analysis of Indonesian corporate debt maturities and cash holdings showed that the companies facing the biggest short-term refinancing hurdle included coking coal miner PT Borneo Lumbung Energi & Metal (JKT:BORN), state-owned carrier PT Garuda Indonesia (JKT:GIAA), auto distributor PT Astra International (JKT:ASII), telecom firm PT Indosat (JKT:ISAT) and PT Bumi Resources (JKT:BUMI).

"Indonesian bond issuers are poorly hedged for rupiah depreciation," said Ani Deshmukh, a credit analyst with BofA Merrill Lynch in Hong Kong. "We estimate only about 20-30 percent of the total non-miner exposure to dollar debt is hedged."

Eric Thompson, Singapore-based managing director of consultancy and corporate restructuring firm AlixPartners, expects "plenty of restructurings in Indonesia from borrowers who have debt coming due in the next 12 months."

LUMPS OF COAL

The coal sector is particularly vulnerable because global prices have plummeted this year. Indonesia is the world's largest exporter of thermal coal.

Bumi Resources, which had just $91 million in cash as of the first quarter and $619 million in short-term debt, is in talks to settle debts and "looking at various options to deleverage", said Dileep Srivastava, a Bumi director.

The coal company is caught up in a battle between Indonesia's politically connected Bakrie group and financier Nat Rothschild for the control of London-listed Bumi Plc (LSE:BUMI), which partially owns Bumi Resources.

Bumi Resources owns 87 percent of Bumi Resources Minerals Tbk (JKT:BRMS), which has $360 million in loans maturing in September. Banking sources said a refinancing of the loans could mirror what the group did in August, when Bumi Resources took a 15-month loan to replace a maturing three-year facility.

The new loan, arranged by Credit Suisse (VTX:CSGN), came at a hefty cost though, with an annual yield of around 18 percent, well above the 11 percent it paid on earlier loans, sources said. A Credit Suisse spokeswoman declined to comment.

Borneo Lumbung Energi is in talks to renegotiate a Standard Chartered-led $1 billion loan after it suffered a $550 million annual loss due to its troubled investment in Bumi and a drop in coking coal prices, sources with knowledge of the matter said.

The company is owned by Samin Tan, an Indonesian businessman who became a white knight for the Bakrie group in 2011.

Standard Chartered (LSE:STAN) is becoming cautious on the loan and now asking for a monthly report as well as more money to put aside on an account for loan repayment, a person familiar with the matter said.

A Standard Chartered spokeswoman in Singapore said the bank would not comment on client activity. Borneo did not respond to a Reuters query seeking comment.

VOLATILE MIX

Oil services firm PT Apexindo Pratama Duta Tbk (APEX.JK) is to push ahead with a bond sale following the Fed meeting, aiming to raise as much as $400 million in five-year debt, people familiar with the plan said.

A company spokeswoman was not available to comment.

But some companies are finding market conditions too volatile. PT Kawasan Industri Jababeka (JKT:KIJA), one of Indonesia's largest industrial park developers, said on Thursday it was postponing a $350 million global bond issue due to market volatility.

Astra, a conglomerate with interests from coal to autos, said it would service its $2.85 billion in short-term debt with cash flow from operations, and fund future expansion with bonds or commercial loans, spokesman Yulian Warman said.

Jababeka, which has 1.6 trillion rupiah in short-term liabilities, was still considering its refinancing options.

"We haven't decided yet whether we want to raise money from commercial loans or bonds. We still have room to raise 500 billion rupiah of new debt based on our debt service (coverage) ratio," said Mulyadi Suganda, Jababeka's corporate secretary.

An Indosat official, who declined to be identified under company policy, said most of its short-term debt is in rupiah, which will be paid through cash flow and debt refinancing.

Garuda did not reply to requests for comment.

(Additional reporting by Umesh Desai in HONG KONG, Patturaja Murugaboopathy in BANGALORE, Prakash Chakravarti and Christopher Langner of IFR/LPC, Anshuman Daga in SINGAPORE, Fergus Jensen and Fathiya Dahrul in JAKARTA; Editing by Emily Kaiser and Neil Fullick)