Indonesian Dollar Junk Bonds Slump as Contagion Risks Emerge

(Bloomberg) -- The plunge in dollar bonds of two Indonesian speculative-grade issuers is raising the risk of contagion for other lower-rated borrowers from the nation.

Securities from Indonesian property firms such as Alam Sutera and Modernland Overseas Pte slid on Thursday morning, data compiled by Bloomberg show.

That’s after a bond from another property company -- APL Realty Holdings -- sank as much as 20 points on a credit downgrade of its parent, and debt sold by a subsidiary of textile manufacturer Duniatex Group plunged this week. That Delta Merlin Dunia Tekstil note sold in March plummeted nearly 70 cents on the dollar after an affiliated company missed a loan payment.

Indonesia’s financial regulator dispelled concern about liquidity in the local banking system. Liquidity “is fine” in general, and delays in loan payments at some companies “is not due to problem of liquidity in banking system” but elsewhere, Wimboh Santoso, Chairman of Indonesia’s Financial Services Authority, known as OJK, said in an interview Thursday.

The nation’s central bank on Thursday cut its benchmark interest rate for the first time in almost two years and pledged more easing to come as Southeast Asia’s biggest economy faces headwinds. While it is too early to call the impact of recent bond declines at individual companies for the wider market, analysts and investors have started to highlight weaknesses in the market amid record speculative-grade bond issuance in Asia this year.

“We have seen contagion from Delta Merlin Dunia Tekstil’s debt problems spreading in Indonesia high yield,” said Owen Gallimore, head of credit strategy at Australia & New Zealand Banking Group in Singapore. “The company’s debt woes have sparked a short term corporate governance panic.”

Officials at Duniatex and APL Realty parent Agung Podomoro weren’t available for comment.

These are some the securities that have fallen this morning, according to Bloomberg-compiled prices:

• Alam Sutera’s 2022 dollar bonds were down 1.3 cent at 95.3 cents on the dollar, as of 4:48pm in Hong Kong, and have posted losses for five straight days.
• Modernland Overseas Pte 2024 bonds dropped 0.6 cents to 94.9 cents, and have fallen for four straight days
• Jababeka International’s dollar bond due 2023 climbed 1.5 cents to 89.2 on the dollar, reversing an earlier decline. The notes are still down about 5 cents from end of last week.

--With assistance from Tassia Sipahutar.

To contact the reporters on this story: Denise Wee in Hong Kong at dwee10@bloomberg.net;Fathiya Dahrul in Jakarta at fdahrul@bloomberg.net

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Finbarr Flynn

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