Inflation to Overshadow Bond Rating in 2010: H1 Bond Issuance Cost Potentially Increase

Thursday, 25/02/2010 00:00 WIB

Inflation to Overshadow Bond Rating in 2010: H1 Bond Issuance Cost Potentially Increase

Irvin Avriano A. & Arif Gunawan S.

for Bisnis Indonesia

JAKARTA: PT Pemeringkat Efek Indonesia (Pefindo) views expectation for inflation and benchmark interest rate in the second semester this year will overshadow the ratings of Indonesian bond issuers, especially manufacturing companies.

In line with this, Pefindo-which commands 90% of the corporate bond securities rating last year-believes the cost of bond issuance fund in the second semester of 2010 will be higher than the cost spent by corporations in the first semester.

President Director of Pefindo Kahlil Rowter revealed the Federal Reserve's policy of raising discount interest rate by 50 basis points in early February showed strong indicators that the US was tightening its monetary policies.

"Following the policy, developing countries like Indonesia have to raise interest rates to prevent the rupiah from plummeting. This is our projection for the second semester of 2010," he said in Jakarta yesterday.

The central bank (BI) on February 4 decided to maintain its benchmark interest rate at 6.5%, which has been staying for six months, following January inflation that jumped to 3.72%, the seven month-high.

Such a situation, told BI Deputy Governor Hartadi Sarwono on February 12, prompted the central bank to take any necessary actions if inflation neared or surpassed 6%, signaling BI would maintain BI rate in March.

Kahlil told expectation for higher interest rate in the second semester of 2010 led to flourishing bond issuance in the first semester this year, leading him to a conclusion that the first semester of 2010 would be the peak period for corporate bond issuance.

He explained the global financial crisis last year would lead to declines in the ratings of several shipping companies.

Combined with expectation for inflation hikes triggered by the global economic recovery, the outlooks of companies in the manufacturing and consumer sectors, such as the textile, footwear, electronic, and food and beverage sectors will face an extra challenge in addition to the impacts of the Asean-China FTA.

Property & construction

On the same occasion, Assistant Vice President Corporate Ratings of Pefindo Niken Indriarsih disclosed inflation this year was potential to increase, especially when fuel prices electricity tariffs were raised in the wake of soaring global crude oil price.

"If this happens, interest rates will increase and the property sector will be affected, which sooner or later will drag the construction sector down, unless the government can accelerate infrastructure stimulus."

She added on the other hand the global economic recovery would bolster demand since companies would realize expansions once stalled during the crisis, thus, bolstering commodity prices.

"Without efficiency and sale price adjustment, soaring raw material prices will be bad news for the manufacturing sector. On the other hand, soaring commodity prices will be good news for mining and plantation companies." (Bisnis/ags/iaa/bsi/m01/m10)