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PR Newswire
20-03-2020, 08:10 AM
Think of a country as a company; the country's politicians as a company's management; the country's currency value as a company's share value. Just like a company, a country can be earning more or less; it can be a net spender or a net saver; it can have a net cash or a net debt position.
And in the same way that an investor can take a short-term or long-term view on a company's prospects, the investor can also take a short-term or long-term view of a country's prospects.
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Indonesian companies borrow in USD not only because it is cheaper, but also because most of their earnings are in USD. Export of natural resources makes up 30% of their gdp. The danger to such companies is not so much that IDR weakens against USD -- which in fact will be positive for the companies with most expenses in IDR -- but that prices of natural resources fall.
Geo Energy and most other Indonesian-based companies issue USD bonds because they are targeting international investors. And international investors generally do not hold IDR, and like most of their peers, will prefer not to. Geo Energy does not earn in IDR. If it does go belly up, the cause will more likely be lower coal prices than weakening IDR against the USD.
It is, of course, possible that Indonesian companies which borrow in USD but earn in IDR may experience massive losses and bankruptcy when USD appreciates against IDR. Investors will have to study the companies in question to determine if such a risk is present.
And in the same way that an investor can take a short-term or long-term view on a company's prospects, the investor can also take a short-term or long-term view of a country's prospects.
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Indonesian companies borrow in USD not only because it is cheaper, but also because most of their earnings are in USD. Export of natural resources makes up 30% of their gdp. The danger to such companies is not so much that IDR weakens against USD -- which in fact will be positive for the companies with most expenses in IDR -- but that prices of natural resources fall.
Geo Energy and most other Indonesian-based companies issue USD bonds because they are targeting international investors. And international investors generally do not hold IDR, and like most of their peers, will prefer not to. Geo Energy does not earn in IDR. If it does go belly up, the cause will more likely be lower coal prices than weakening IDR against the USD.
It is, of course, possible that Indonesian companies which borrow in USD but earn in IDR may experience massive losses and bankruptcy when USD appreciates against IDR. Investors will have to study the companies in question to determine if such a risk is present.