Home Capital Property

Moody's warns of rupiah depreciation and impact on developers' USD debt

Goola Warden
Goola Warden6/9/2022 12:00 PM GMT+08  • 2 min read
Moody's warns of rupiah depreciation and impact on developers' USD debt
Mt Bromo, Indonesia
Font Resizer
Share to WhatsappShare to FacebookShare to LinkedInMore Share
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

On June 9, Moody's Investors Service warned that Indonesia is facing a heightened risk of rupiah depreciation due to rising foreign capital outflows – a credit negative for rated Indonesian developers as most of their debt is in US dollars. Most developers' financial hedges have reduced, leaving them particularly vulnerable to a weakening rupiah, according to a new report by Moody's Investors Service.

The rupiah has held relatively stable over the past 12-18 months. In recent days though, foreign capital outflow resulting from elevated global financial market uncertainty is signaling a rising risk of currency depreciation, although the situation is nowhere are serious as it was during the Asian Financial Crisis, Global Financial Crisis or 2015, when the US dollar strengthened. The US dollar is expected to strengthen further as the US Federal Reserve raises the US Federal Funds Rate further this year, and drains US dollar liquidity via quantitative tightening.

"This presents a risk for Indonesian property developers, because the principal amounts and interest expense of their US dollar debt will increase in rupiah terms, thereby weakening their ability to service these obligations. More than two-thirds of their aggregated debt is denominated in US dollars, while their revenue is earned in rupiah," says Rachel Chua, a Moody's Vice President and Senior Analyst.

For more insights on corporate trends...
Sign In or Create an account to access our premium content.
Subscription Entitlements:
Less than $9 per month
Unlimited access to latest and premium articles
3 Simultaneous logins across all devices
Bonus unlimited access to online articles and virtual newspaper on The Edge Malaysia (single login)
Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
Subscribe to The Edge Singapore
Get credible investing ideas from our in-depth stock analysis, interviews with key executives, corporate movements coverage and their impact on the market.
© 2022 The Edge Publishing Pte Ltd. All rights reserved.
Unlock unlimited access to premium articles with less than $9 per month. Subscribe Now