Indonesian developers brace for higher debt servicing costs as rupiah slides to 17-year low

Cash flows will be squeezed as forex losses escalate.

Indonesian developers will be burdened by much higher debt servicing costs as the rupiah continues its unprecedented slide against the greenback.

According to a recent report by Moody’s, the rupiah’s depreciation is credit negative for property developers in Indonesia because two-thirds of their debt is denominated in US dollars but their earnings are entirely in rupiahs.

Moody’s said that with the US dollar/rupiah exchange rate now at 14,181, its weakest since 1998, around 80% of hedged US dollar-denominated debt principal is unprotected.

Interest payments on the bonds are unhedged, according to the companies, and will contribute to rising debt servicing costs because of exchange-rate translation losses that will squeeze the developers’ cash flows.

“At the current exchange rate, only about 20% of the companies’ total hedged US dollar debt is protected by hedging facilities. Lippo Karawaci and Alam Sutera Realty are particularly vulnerable to further rupiah declines, given that their option facilities provide coverage only when the exchange rate is below 14,000,” said Moody’s.