December 7, 2016 / 8:04 AM / in 8 months

Fitch Affirms Ratings on 4 of Astra's Multi-Finance Subsidiaries

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(The following statement was released by the rating agency) SINGAPORE/JAKARTA, December 07 (Fitch) Fitch Ratings Indonesia has affirmed the Issuer Default Ratings (IDRs) and National Ratings on PT Astra International Tbk's multi-finance subsidiaries as follows: - PT Astra Sedaya Finance (ASF): 'BBB-' and 'F3'; 'AAA(idn)' and 'F1+(idn)' - PT Federal International Finance (FIF): 'AAA(idn)' and 'F1+(idn)' - PT Surya Artha Nusantara Finance (SANF): 'AA(idn)' and 'F1+(idn)' - PT Toyota Astra Financial Services (TAFS): 'AAA(idn)' and 'F1+(idn)' The Outlooks are Stable. A full list of rating actions is at the end of this commentary. 'AAA' National Ratings denote the highest rating assigned by Fitch on its national rating scale for that country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country. 'AA' National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherently differs slightly from that of the country's highest rated issuers or obligations. 'F1' Short-Term National Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. On Fitch's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating. KEY RATING DRIVERS IDRS and NATIONAL RATINGS The ratings affirmations on ASF, FIF and SANF reflect Fitch's expectation that the companies will continue to benefit from strong support and commitment from their majority shareholder, PT Astra International Tbk (AI). AI is one of Indonesia's largest private companies by market capitalisation, and dominates the country's automotive and heavy equipment sectors. It is 50.1% owned by Jardine Cycle & Carriage Ltd, which is part of the Jardine Matheson Group. Both ASF and FIF are majority-owned by AI and significantly contribute to expanding the latter's car and motorcycle manufacturing and distributor business in Indonesia. ASF provides direct financing services for AI's car sales while FIF provides direct financing services for the purchase of Honda motorcycles produced by Astra Honda Motor, a 50-50 joint venture between AI and Honda Motor Co., Ltd (A/Stable). SANF's ratings take into account its limited importance to the Astra Group. SANF provides financing services to companies that buy heavy equipment from PT United Tractors Tbk, the Astra Group's heavy equipment distribution subsidiary in Indonesia. However, SANF's importance to AI, in Fitch's view, is limited and not as strong as that of ASF and FIF, as SANF's share of AI's total assets at 2.5% is the smallest among the four multi-finance subsidiaries. The Stable Outlooks reflect Fitch's expectations that AI will continue to support ASF, FIF and SANF if required. The affirmation of TAFS's ratings reflects its strong support from Toyota Financial Services Corporation (TFSC), one of its two major shareholders. TFSC is a wholly owned subsidiary of Toyota Motor Corporation (TMC; A/Stable), one of the largest automotive manufacturers in the world. As part of the Toyota group, TAFS benefits from product knowledge and funding support. The latter is derived from TMC's strong relationship with Japanese banks and Japanese government-backed financial institutions. TAFS provides financing for purchase of Toyota cars in Indonesia. TAFS also benefits from support from AI, the other major shareholder, particularly in dealership networks. AI is a leading car distributor in Indonesia and holds exclusive rights to sell Toyota vehicles in the country. The Stable Outlook reflects Fitch's expectations that TMC and AI will continue to support TAFS if needed. The significant weakening of the automobile market in Indonesia and global commodity markets has led to deterioration in asset quality and profitability among Indonesian multi-finance companies, which could impact the standalone credit profiles of the AI financing subsidiaries. Fitch expects the profitability of ASF, FIF and TAFS to continue to be under some pressure in the near to medium term due mainly to potential higher credit costs, but high provision coverage should help to cover credit losses through economic cycles. The non-performing loan (NPL; overdue more than 90 days) ratios of ASF, FIF and TAFS remained manageable at below 1% of total net managed receivables at end-September 2016, which was lower than its peers and the industry average of around 2.2%. Net charge-offs during 9M16 remained stable at end-2015 levels of below 2% of net managed receivables for each of the three companies, although this was higher than in prior years. SANF's NPL ratio remained elevated at 1.9% of total net managed receivables at end-September 2016 due to its substantial exposure to commodity-related industries, such as coal mining and plantations, which have suffered severe downturns since 2012. Its net charge-offs moderated during 9M16, falling to 0.7% of net managed receivables at end-September 2016, from 2.4% at end-2015. Overall, Fitch expects SANF's asset quality to remain under pressure until there is a substantial global economic recovery that leads to a sustained increase in commodity prices. DEBT RATINGS The bonds and debt programmes of the four subsidiaries are rated at the same level as the issuers' National Long-Term and Short-Term Ratings. ASF's foreign-currency notes are rated at the same level as its Long-Term IDR. RATING SENSITIVITIES IDRS and NATIONAL RATINGS A significant and sustained drop in contribution from ASF, FIF and SANF to AI in terms of credit sales financing or profit contribution could result in negative rating action. A significant decline in AI's ownership or significant increase of management independence would also exert downward pressure on the ratings of ASF, FIF and SANF, although Fitch considers this prospect to be remote in the foreseeable future, given the importance of ASF to AI's car business, FIF to the motorcycle business of AI and Astra Honda Motor, and SANF to AI's heavy equipment business. Any decline in TMC's ownership would exert downward pressure on TAFS's ratings, as would a decline in support from both shareholders. However, Fitch sees this prospect as remote in the foreseeable future, given TAFS's strategic role in providing financing for Toyota cars sold in Indonesia. ASF's IDR is sensitive to changes in AI's credit profile. There is no rating upside for the national ratings of ASF, FIF and TAFS as they are rated at the top of the national scale. For SANF, a significant increase of its strategic importance to AI - likely caused by higher AI ownership, common group branding or a significant increase in SANF's asset contribution to AI - may result in positive rating action. DEBT RATINGS Any changes in the issuers' international and National Ratings would affect the issue ratings. The rating actions are as follows: ASF Long-Term IDR affirmed at 'BBB-'; Outlook Stable Short-Term IDR affirmed at 'F3' National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable National Short-Term Rating affirmed at 'F1+(idn)' Rupiah senior unsecured bond programmes and tranches under the programmes affirmed at 'AAA(idn)'/'F1+(idn)' US dollar euro medium-term note (EMTN) programme and tranches under the programme affirmed at 'BBB-' FIF National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable National Short-Term Rating affirmed at 'F1+(idn)' Rupiah senior unsecured bonds affirmed at 'AAA(idn)'/F1+(idn)' SANF National Long-Term Rating affirmed at 'AA(idn)'; Outlook Stable National Short-Term Rating affirmed at 'F1+(idn)' Rupiah senior unsecured bonds affirmed affirmed at 'AA(idn)' Rupiah medium-term notes affirmed at 'AA(idn)' TAFS National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable National Short-Term Rating affirmed at 'F1+(idn)' Rupiah senior unsecured bond programmes and tranches under the programmes affirmed at 'AAA(idn)'/'F1+(idn)' Contacts: Primary Analysts Ambreesh Srivastava (International Ratings for ASF) Senior Director +65 67967218 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-5 Suntec Tower Four Singapore 038986 Gary Hanniffy, CFA (National Ratings for ASF) Director +62 21 2988 6808 PT Fitch Ratings Indonesia DBS Bank Tower Level 24 Jl. Prof. Dr. Satrio Kav.3-5 Jakarta, Indonesia 12910 Priscilla Tjitra (National Ratings for FIF and TAFS) Associate Director +62 21 2988 6809 Tomi Rustamiaji (National Ratings for SANF) Analyst +62 21 2988 6810 Secondary Analysts Gary Hanniffy, CFA (International Ratings for ASF) Director +62 21 2988 6808 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7601 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. 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