LONDON: Standard & Poor's Ratings Services today assigned its 'BB-' long-term foreign currency issue rating to the Republic of Indonesia's proposed benchmark size, five-year global Sukuk trust certificates.

The rating on the trust certificates of the issuer Perusahaan Penerbit SBSN Indonesia I. (PPSI-I), the special purpose vehicle set up and wholly owned by the Republic of Indonesia, reflects the strength of the lease agreement, under which the sovereign as the lessee is obliged to make all payments needed to ensure that the issuer has funds sufficient to pay the certificate holders.

"The issue represents the sovereign's first foray into the global Islamic debt market as a source of foreign currency funding," said credit analyst Agost Benard. "Standard & Poor's decision to rate this issue on par with the sovereign's commercial financial obligations takes into account representations of the Republic, indicating that all payments under the deal are viewed as equal ranking in priority to other external debt obligations of the Republic."

The sovereign credit ratings on Indonesia are underpinned by continued improvements in the country's public debt and fiscal position, and its enhanced external liquidity cushion built up over the past several years. General government debt is expected to have fallen to about 32% of GDP in 2008, nearly half its level in 2004, owing to consistent primary budget surpluses and strong nominal GDP growth. The country's external liquidity position remains moderately strong at US$54.8 billion at the end of March, notwithstanding a sharp drop from the record high of US$60.5 billion in July 2008.

The sovereign ratings are also supported by a continued prudent fiscal stance. Standard & Poor's believes the government's 2009 spending plan and associated rise of the fiscal deficit to a targeted 2.5% GDP do not represent a weakened commitment to fiscal prudence, and that the public debt ratios will remain on an improving path.

The ratings, however, remain constrained by the country's external and government debt burden and attendant vulnerability to external shocks, and adverse exchange rate movements. Indonesia's net external debt burden (including liquid assets), at an estimated 40% of current account receipts in 2008, is higher than that for most similarly rated countries, or the 'BB' median's small net external creditor status.

In addition, numerous microeconomic distortions continue to detract from the sovereign's creditworthiness. Despite recent reform efforts, infrastructure shortfalls, legal uncertainties, corruption, and labor market rigidities stunt the country's growth potential. A key challenge for the government is to maintain support for ongoing reforms and to ensure that momentum is maintained beyond this year's elections.

"The stable outlook on the sovereign ratings reflects Standard & Poor's view that debt reduction in recent years and an improved policy environment, particularly the flexible exchange rate regime, will enable the government to sustain an adequate external liquidity cushion in the face of ongoing external shocks," added Agost Benard.

Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.

-Ends-

Standard & Poor's, a subsidiary of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research and data. With offices in 23 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com. 

Analyst contacts:
Agost Benard,
Singapore
Elena Okorotchenko,
Singapore

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© Press Release 2009

 

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