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Debt market: Indonesia shows its unpredictable side

Iwan Setiawan Lukminto, president director of defaulted Sritex. Photo: Getty

Banks and bond investors are waking up to the difficulty of recovering their money from Indonesian companies that have been hit by the pandemic. Here’s what creditors need to know.

The following is a cautionary tale about Indonesia, and what happens when companies cannot pay their debts – whether because of the pandemic or for other reasons.

By December 2020, a Singapore-based loans banker had become worried about Sri Rejeki Isman, or Sritex, Indonesia’s biggest textile maker, and advised his team to reduce the bank’s exposure by selling a portion of its loan in the secondary market.

But on December 24, ratings agency Moody’s downgraded Sritex from B3 to B1 citing its weakening liquidity position, and suddenly the bank couldn’t find any buyers for the debt. The ratings cut, which had serious ramifications for Sritex, as well as for the wider Indonesian debt market, served as a red flag to other lenders.

“I will never forget how things snowballed after that,” the loans banker says.

Sritex, which had debts of $2 billion, missed an interest payment on a dollar syndicated loan in April 2021, leading to a default.


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