"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.
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.
