Assessment of Default Risk on Indonesian Corporate Sukuk Using the Moody’s KMV Model

Abstract

This study examines the probability of default of Corporate Sukuk issuers in Indonesia using the Moody's KMV Model. The increasing development of corporate sukuk in Indonesia has raised concerns regarding issuer solvency and default vulnerability, particularly because many contemporary sukuk structures continue to exhibit asset-based and debt-like characteristics. This study aims to assess the default risk profile of Indonesian corporate sukuk issuers and to evaluate the relevance of the KMV framework in identifying financially distressed issuers. The study employed a quantitative approach using secondary data obtained from audited financial statements, Indonesia Stock Exchange publications, and market data of corporate sukuk issuers. The sample consisted of sukuk ijarah and sukuk mudharabah issuers listed on the Indonesia Stock Exchange, selected using purposive sampling. The probability of default was estimated through the Moody’s KMV framework by calculating firm asset value, asset volatility, Distance to Default (DD), and Expected Default Frequency (EDF). The results indicate that issuers possessing lower asset values and higher asset volatility consistently produced lower DD values and higher EDF values, reflecting a greater probability of default. The findings also show that the repayment capacity of corporate sukuk issuers remains highly dependent on issuer financial stability rather than on the liquidation value of underlying assets. In addition, the KMV framework successfully identified issuers experiencing severe financial distress, particularly PT Berlian Laju Tanker Tbk and PT Tiga Pilar Sejahtera Food Tbk. The study concludes that the KMV framework provides a relevant market-based approach for assessing default risk within the Indonesian corporate sukuk market.