Indonesian Corporations Debt Repayments Capability Weakens

By Editorial Team 03/10/2019
Summary

Moody's Investor Service stress-test results released on Tuesday (10/1) noted that Indonesia was one of the most vulnerable countries against weakening corporate debt repayment capacity. The assessment was based on the simulation, which saw the earnings before interest, tax, depreciation, and amortization (EBITDA) in companies decreased by 25 percent. Therefore, the debt to EBITDA ratio exceeded 4 with an Interest Coverage Ratio (ICR) below 1.

According to Moody's, the greater the debt to EBITDA ratio, the higher the debts compared to the company's revenue would be. Conversely, the lower the ICR, the lower the company's ability to cover the debt interest costs. Moody's noted, 53 percent of total corporate debt in Indonesia has a debt to EBITDA ratio above 4, while 40 percent have ICR below 2. The higher portion of foreign currency debts and inadequate hedging may further lower the corporate debt repayment capacity as well.

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