Fitch: Efficacy of Indonesian bankruptcy law unknown

Fitch Ratings said that given the absence of any major default since the 1998 Asian financial crisis, the revised Bankruptcy Law 2004 in Indonesia remains untested and the lack of recent case law makes it difficult to ascertain whether the issues encountered with the original law have been overcome.

"Indonesia's legal regime has a poor historical track record for security enforceability," Siew Huey Loong, director in Fitch's Asia-Pacific corporate ratings group, said in an agency report.

"Until a track record is established, the agency can give only limited weighting to any security when assigning instrument ratings and will evaluate instruments issued by Indonesian corporates on a case-by-case basis given the variables involved, such as structure, covenants, limitations and ring-fencing mechanisms."

Fitch said the publication of its report coincides with an increasing number of Indonesian corporates returning to the capital markets following their recovery from the Asian financial crisis. This recently improved level of capital market access has been facilitated by a number of factors, including an improved political environment and macro stability and the strengthening credit profiles of the corporate universe following significant deleveraging since the crisis, the agency said.

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