October 6, 2017 / 9:20 AM / 2 years ago

Fitch Affirms Sarana Multi Infrastruktur at 'BBB-'; Outlook Positive

(The following statement was released by the rating agency) HONG KONG/JAKARTA, October 06 (Fitch) Fitch Ratings has affirmed PT Sarana Multi Infrastruktur (Persero)'s (SMI) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB-' and Short-Term Foreign-Currency IDR at 'F3'. The Outlook on the Long-Term IDRs is Positive. The rating affirmations reflect Fitch's expectations of continued strong extraordinary support from the Indonesian government, if needed. SMI's international ratings are equalised to those of the Indonesian sovereign (BBB-/ Positive/F3), reflecting its status as a wholly owned state corporation and its important policy role in providing financing for infrastructure projects, a key priority for the government. KEY RATING DRIVERS Strong Legal Status: SMI was established by the Ministry of Finance (MoF) as a state-owned infrastructure finance company under Government Regulation No. 75 of 2008 and is wholly owned by the state. Strong Control and Oversight: The MoF is the sole shareholder of SMI and hence has an important role in the supervision of the company's strategic direction, as well as its budget plans. The MoF has the authority to appoint members of the board of commissioners and the board of directors. Moreover, SMI's infrastructure financing business is closely regulated by the Financial Services Authority (OJK). In view of the government's strong state control, the Control attribute was assessed at Stronger. Mid-Range Integration: SMI has consistently received capital support from the MoF, including an injection of IDR4.16 trillion in 2016 that followed an injection by Pusat Investasi Pemerintah (PIP), or the Government Investment Unit of Indonesia, in 2015. Moreover, the MoF raised the company's authorised capital to IDR50 trillion in 2016, from IDR25 trillion, which will allow further state support. The assessment of the Integration attribute at Mid-Range also factors in the government's track record of providing support and Fitch's expectations of recurring capital support. Strong Strategic Importance: Infrastructure investment is a key priority for Indonesia, but there are significant capital needs that cannot be financed solely from the national budget. SMI plays a key policy role as a provider of infrastructure financing to attract public-private partnership (PPP) investments. Fitch believes a default of SMI could cause reputational damage to the sovereign that would negatively impact the availability of funding to state-owned enterprises and local and regional governments (LRGs) for infrastructure investments. Growing Policy Lending Role: Indonesia has been decentralising infrastructure investment decisions to LRGs, which makes SMI increasingly important in supporting LRGs' infrastructure investments, although this is a gradual process. In 2016, SMI's lending to LRGs accounted for only 4% of total financing outstanding, suggesting room for further growth. A recent regulatory change has allowed the MoF to provide certain guarantees to SMI's lending to LRGs, through the assignment of transfer payments, if required. Infrastructure Dominates Lending: SMI's financing outstanding increased by 77% to IDR30.4 trillion in 2016, 20% above the original target, and net income rose by 297%. The loans were primarily allocated to PPP projects for road and electricity. Based on the current financing commitment, SMI is likely to continue expanding over the medium term. During the year, SMI maintained a stable gross non-performing loan ratio of 1.16%, with no defaults reported. Increasing Leverage: SMI's debt-to-equity ratio rose to 0.42x at end-2016 (end-2015: 0.28x) in line with a growing loan portfolio, but remained below the 3x set in the financial covenant of its note issue and regulatory limit of 10x. However, SMI's potential risk could increase in the event of a sharp economic downturn because its loans are concentrated in infrastructure. RATING SENSITIVITIES SMI's ratings are credit linked with those of Indonesia. Any movement in the sovereign ratings would be reflected in SMI's ratings. Furthermore, any negative changes to SMI's legal status, leading to a dilution of the government's shareholding or control, could trigger a rating downgrade. Contact: Primary Analysts Samuel Kwok Associate Director +852 2263 9983 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Fernando Mayorga Managing Director +34 93 323 87407 Committee Chairperson Raffaele Carnevale Senior Director +39 02 87 90 87 203 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com 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 Dodd-Frank Rating Information Disclosure Form here 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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