PEFINDO Rating: Definition and How it Works

Bittime - In the world of finance, understanding credit risk is very important, especially for investors and capital market players. The risk of default by a company or financial instrument can have a major impact on investment stability. This is where the role of credit rating agencies such as PT Pemeringkat Efek Indonesia (PEFINDO) becomes crucial. With transparent and accurate rankings, PEFINDO helps create a safer and more trustworthy investment ecosystem.

Understanding PEFINDO Ratings

PT Pemeringkat Efek Indonesia (PEFINDO) is the first independent credit rating agency in Indonesia which was established on December 21 1993 at the initiative of the Capital Market Supervisory Agency (BAPEPAM), which is now known as the Financial Services Authority (OJK), and Bank Indonesia. As a reliable credit rating agency, PEFINDO is tasked with analyzing the probability of default on a company or debt instrument in Indonesia.

For more than 25 years, PEFINDO has provided rating services to more than 1,100 entities and various capital market instruments such as bonds, subordinated bonds, sukuk, Medium-Term Notes (MTN), Asset-Backed Securities (KIK-EBA), mutual funds, Real Estate Investment Funds (DIRE), and Commercial Papers. Since 2011, PEFINDO has also started analyzing and providing ratings to regional governments to support the issuance of regional bonds in Indonesia.

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How PEFINDO Ratings Work

PEFINDO provides rating services for various entities, including companies, local governments, financing projects, and financial instruments such as bonds and sukuk. In the process of rating a company, PEFINDO evaluates the company's ability and willingness to fulfill its financial obligations. 

However, a company's rating cannot be used as a rating for financial instruments issued by that company. If a company issues financial instruments, those instruments must be valued separately.

Financial instrument ratings are based on an evaluation of the obligor's ability and willingness to fulfill the financial obligations of the instrument, analysis of a particular set of financial obligations, as well as evaluation of the financial program associated with the instrument. Apart from that, in assessing a financial instrument, PEFINDO also considers the capabilities of guarantors, insurance providers and other credit enhancement providers.

The opinion given by PEFINDO reflects the obligor's ability and willingness to fulfill its financial commitments until maturity.

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Benefits of PEFINDO Ratings

PEFINDO's ranking provides various benefits for financial markets and investors in Indonesia. First, these ratings help increase market transparency by providing objective information about the credit risk of an entity or financial instrument. Second, the ratings provided by PEFINDO increase investor confidence because they can assess investment quality more accurately. In addition, companies and local governments wishing to issue bonds can use the ratings as a guide in determining better financing strategies. Lastly, regulators such as the OJK also use ratings from PEFINDO as a reference in monitoring the stability of the capital market in Indonesia.

PEFINDO Indexes and Publications

Apart from ranking services, PEFINDO also conducts research and publishes various indexes and capital market publications. The PEFINDO25 index, for example, reflects the performance of shares of companies with small to medium market capitalization that have good fundamentals. 

PEFINDO also has an i-Grade index which reflects shares of companies with high credit ratings. Meanwhile, publications such as the Indonesia Sectoral Review (ISR) and Indonesia Rating Highlights (IRH) are the main references for capital market players in understanding financial market conditions in Indonesia.

Conclusion

PEFINDO plays an important role in the Indonesian capital market ecosystem by providing credit ratings that help investors and market players in assessing the credit risk of a company or financial instrument. With more than 25 years of experience, PEFINDO continues to contribute to increasing transparency and stability of financial markets in Indonesia.

FAQ

1. What is PEFINDO?

PEFINDO is the first independent credit rating agency in Indonesia tasked with analyzing the risk of default on a company or financial instrument.

2. What are the benefits of PEFINDO's rating for investors?

Ratings from PEFINDO help investors assess the credit risk of an entity or financial instrument, increase transparency, and provide more accurate investment guidance.

3. Does every company assessed by PEFINDO automatically get a good rating?

No. The rating given by PEFINDO reflects the financial condition and credit risk of the company or instrument being assessed, so it can be high or low depending on the results of the analysis.

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Reference

PEFINDO, About PEFINDO, accessed March 11, 2025.

Author: MF