August 22, 2017 / 12:06 PM / a year ago

Correction: Fitch Affirms Sarana Multigriya Finansial at 'AA+(idn)'/Stable

(The following statement was released by the rating agency) JAKARTA, August 22 (Fitch) This announcement replaces the version published on 18 August 2017 to remove the senior unsecured ratings and debt programmes. Fitch Ratings Indonesia has affirmed the National Long-Term Rating of PT Sarana Multigriya Finansial (Persero) (SMF) at 'AA+(idn)' with a Stable Outlook and the National Short-Term Rating at 'F1+(idn)'. SMF's ratings reflect the government's strong control and hence oversight of SMF, as well as a track record of state financial support. Fitch believes there is a high probability of extraordinary state support for SMF, if needed. '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 only 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 Control "Stronger": SMF was established by the Ministry of Finance (MoF) under the Presidential Regulation No. 19 of 2005 and is the sole company offering secondary mortgage financing in Indonesia. The MoF has direct control over SMF's strategic direction through the appointment of the board of commissioners and board of directors. The company's annual budgets and long-term plans are subject to audit and approval by the MoF. In view of the government's tight oversight, the attribute was assessed at Stronger. Integration "Stronger: Since its establishment, the MoF has consistently provided capital support totalling IDR5 trillion, including an IDR1 trillion planned capital injection for 2017. Fitch sees the recurring financial support as an indication of the government's strong commitment in supporting SMF's ongoing expansion and that further contributions can be expected. Legal Status "Midrange": Although SMF is wholly owned by the Indonesian state, the entity can be made bankrupt. The attribute was assessed at Midrange as there is no automatic assumption of SMF's liabilities by the government. Strategic Importance "Midrange": SMF plays a strategic role in developing the secondary mortgage market in Indonesia. SMF helps to increase the longer term funding availability for the housing financial system through direct lending to mortgage lenders and the securitisation of residential mortgage-backed securities (RMBS). Its strategic importance was assessed at Midrange considering mortgage loans as a percentage of Indonesian GDP is low at 2.8%. Developing Indonesia's RMBS Market: As Indonesia's secondary mortgage market is still under development, Fitch believes SMF will continue to play a key role over the longer term. In 2016, SMF successfully issued IDR1.5 trillion of RMBS participation certificates, following Indonesia's first issuance of RMBS with participation letter in 2015. There were no non-performing loans at end-2016 as the issues are backed by collateral and stringent underwriting requirements. SMF's Expanding Role: In order to broaden the mortgage debtor base, SMF has experienced tremendous growth, with a total asset CAGR of 21% from 2013-2016. Management expects the lending segment to remain a growth driver following the relaxation of the mortgage market in 2016 and expects stable growth for net income in 2017. Increasing Leverage: Asset liability management is integral to SMF's financing plan, while the company's debt maturity profile closely matches that of loans due from mortgage lenders. Moreover, SMF has maintained sound liquidity with liquid assets of IDR4 trillion, or 30% of total assets, as of end-2016. SMF's defined leverage of debt to equity has gradually increased to 1.6x, but remained well below an internal limit of 4x. RATING SENSITIVITIES Downward rating pressure could arise from any negative changes to SMF's legal status through a dilution of the government's ownership or a reduction in the MOF's influence on the company's strategy and operations. Contact: Jessica Pratiwi Analyst +62 21 2988 6816 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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