Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Countries routinely obsess about certificates of good housekeeping.

At times, they are important for credibility. During the Asian financial crisis, for instance, South Korea slipped nine rungs on S&P's ladder in less than three months. No surprises then that when the economy started healing, and the rating company finally restored Korea to investment grade in January 1999, the bond market heaved a huge sigh of relief.

Far more often, though, the craving for investment grade is a vanity project. Or at least that's what it was in 2013 in the Philippines, and now it appears it's Indonesia's turn to join the craze.

It's been almost half a decade since the country got the much-vaunted stamp of safety from Fitch Ratings and Moody's, but all this while S&P has left Indonesia hanging from the top hook of a junk-bond rating. Even now, it's refusing to oblige.  

Does a clean bill of health from all three doctors matter? It will surely give President Joko Widodo some bragging rights. But Indonesian borrowers -- and global investors -- aren't exactly waiting with bated breath.

Who's Worried?
Indonesian dollar bond yields have fallen more than 90 basis points this year
Source: JPMorgan

To see why, take all of the country's publicly traded companies with outstanding bonds. Their average probability of default over the next year is now slightly more than 0.75 percent, according to a proprietary Bloomberg scoring model. While that's still not in safe territory, the likelihood of the group missing its obligations has slid from as high as 1.6 percent over the past year. What has mattered to investors is this improvement, and not any credit score.

Risk Abates
The highest default probability of Indonesian listed companies has halved in past year*
Source: Bloomberg
*One-year default probability according to a proprietary Bloomberg risk metric.

As a commodity exporter, Indonesia couldn't possibly have escaped the rout in resource prices. The country is home to some of the most distressed borrowers in Asia, including Bumi Resources and Berau Coal, with their U.S. currency debt trading below 30 cents on the dollar. 

Leaving aside basket cases, there's reason for optimism. Oil-and-gas producer Medco Energi is doing a rights issue to lower its debt-to-equity ratio of 225 percent and to finance a $2 billion bid, together with other investors, for Newmont Mining's Indonesian operations. Medco's dollar bonds are trading above par.

Then there are non-commodity borrowers such as Siantar Top, which has a 60 percent share of the local snack noodles market. The company has liabilities of about 2.5 times its Ebitda, and a $37 million investment plan for this year, mostly funded by debt, according to local rating company Pefindo. But investors are sanguine.

Ditto for construction company Adhi Karya, which plans to invest in a light rail transit project as well as toll roads in Sumatra and Java. The company's default likelihood, according to Bloomberg's risk metric, has crashed since September last year, and is now low enough for it to be considered investment grade. The company's 2019 rupiah bonds, which pay a 9.8 percent coupon, are trading almost at par.

Indonesia could still turn unprofitable for investors if the rupiah, the second-most volatile Asian currency in the past year, becomes more jittery as U.S. interest rates rise. With that risk discounted, though, Indonesia's high yields can be rewarding. Never mind the rating labels.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at

To contact the editor responsible for this story:
Matthew Brooker at