Jakarta. Rating agency Standard & Poor’s has warned listed companies in Indonesia to be cautious before proceeding with any share buyback plans, as it could drain liquidity amid a challenging economic environment.

A handful of publicly-listed companies in Indonesia announced plans to buy back their shares last year as local market valuations faced a massacre from global market tensions, dragging the local benchmark index down 12 percent last year.

In response, the Financial Service Authority (OJK) in August issued a regulation that allows the management of publicly listed companies to buyback their floating shares to prop up the share prices, without securing approval from shareholders first, as previously required.

“Raising shareholder remunerations could rapidly erode companies’ liquidity, especially if they need to refinance in the near-term or if they face a difficult operating environment,” Xavier Jean, credit analyst at S&P, said in a statement on Tuesday.

He added that subdued consumer sentiment in Indonesia will continue to mute revenue growth and margin improvements for companies operating in the country, while “refinancing requirements keep growing.“

“At the same time, companies will continue to spend and, in some cases, undertake shareholder-friendly initiatives despite tougher operating conditions. Therefore, liquidity and refinancing are becoming central to credit analysis compared with 12 to 18 months ago,” he said.

S&P noted that diversified conglomerates like MNC Investama or tower operator Tower Bersama Infrastructure have either planned share buy-backs or are promising higher dividends to shareholders.

The New-York based company is still holding a cautious view on operating conditions in Indonesia with a forecast of a 4.9 percent economic growth this year —much lower than the government’s target of 5.3 percent.

The rating agency also warned companies with maturing dollar-denominated debt this year may face higher refinancing risks since investors are keeping away from emerging markets, like Indonesia, amid the current volatile market.

Against such odds, S&P is forecasting another tough season for Indonesia’s corporate this year, with an increasing number of rating downgrades for several corporations, according to the statement.

S&P currently has negative outlooks, known as CreditWatch placements, with negative implications on eight Indonesian companies, the highest level since 2009.

“This is about 30 percent of the companies we rate in Indonesia, compared with about 20 percent as of June 30, 2015, and less than 10 percent as of June 30, 2014."

Most of the negative ratings up to the first half of last year cited structural factor, such as high capital spending and rising debt despite tough operating conditions, although S&P noted that liquidity issues have become the growing concern to the negative ratings since then.