Indonesia’s Trikomsel says it will likely default on Singapore-issued bonds

Indonesian mobile phone retailer PT Trikomsel Oke Tbk warned on Monday that it will likely default on its S$215 million (US$155 million) bonds, in what would be the first in the Singapore bond market since the global financial crisis.

The announcement by Trikomsel, which is 19.9 per cent-owned by Japan’s SoftBank Group Corp, could decrease investor appetite for debt issued by Indonesian companies.

Some Indonesian firms already are under pressure due to the rupiah’s depreciation, sagging domestic economic growth and concern about outflows whenever United States interest rates are hiked. “It will highlight the risks that a number of other Indonesian businesses face and should put pressure on the bonds and equities of other companies with high foreign exchange debt,” said Vaninder Singh, an economist at RBS.

Indonesia’s sovereign credit default swaps (CDS) underperformed their regional peers on Monday, reflecting some of these concerns. Its five-year contract rose by one basis point versus a general decline in other Asian sovereign CDS.

Jakarta-based Trikomselhad issued a S$115 million bond due 2016 bearing a 5.25 per cent coupon rate, and a S$100 million bond due 2017 paying 7.875 per cent.

In a filing to Singapore’s stock exchange on Monday, Trikomsel said that more than 80 per cent of its total debt of around US$460 million, which includes the two Singapore dollar bonds, will fall due in the next two years. “With the depleting and volatile cash flow, the company anticipates that it is unlikely to be in a position to service interest and repay debts as they fall due,” Trikomsel said, adding that it will come up with restructuring proposals in the next 2-3 weeks.

Trikomsel said its mobile phone sales have been hit by a reduction of the number of its retail shops and increased competition in the market, while the weak rupiah has dampened the purchasing power of consumers.

Cash flow from operations was negative 53.5 billion rupiah (US$3.9 million) for the six months ended June, Trikomsel said.

The rupiah has fallen more than 9 per cent against the dollar this year, making it the second-worst performing Asian emerging market currency after Malaysia’s ringgit. markets.