October 13, 2016 / 10:31 AM / a year ago

Fitch Rates BRISyariah's Subordinated Sukuk 'A+(idn)'

(The following statement was released by the rating agency) JAKARTA, October 13 (Fitch) Fitch Ratings Indonesia has assigned a 'A+(idn)' National Long-Term Rating to PT Bank BRISyariah's (BRIS; AA+(idn)/Stable) proposed issuance of subordinated sukuk up to a maximum of IDR1trn, with a maturity of seven years. The proceeds will be used to strengthen the bank's capital structure and support business growth. The rating takes into account the sukuk's structure and documentation, which includes the following features: - the sukuk will represent the bank's direct, subordinated and unsecured obligations and will rank pari passu with all its other unsecured and subordinated obligations - BRIS's commitment to irrevocably purchase the assets on maturity or the declaration of an event of default - the price payable will be the aggregate of the sukuk's outstanding face amount plus any accrued and unpaid periodic distributions - on any periodic distribution date, BRIS will pay the sukuk holders revenue sharing from the revenues generated from its rupiah financing portfolio, which is intended to be sufficient to fund the periodic distribution amounts payable by BRIS - if the sukuk ceases to be a sharia security, it will be declared in default and will immediately mature and become repayable. The transaction will be governed by Indonesian law. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under Indonesian law, but considers BRIS's intentions to support its sukuk obligations. Fitch's rating for the certificates reflects the agency's belief that BRIS will stand behind its obligations. Furthermore, by assigning ratings to subordinated sukuk issuance, Fitch does not express an opinion on the structure's compliance with sharia principles. 'A' Long-Term National Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment to a greater degree than is the case for financial commitments denoted by a higher-rated category. KEY RATING DRIVERS The proposed subordinated sukuk securities are rated three notches below BRIS's National Long-Term Rating of 'AA+(idn)', comprising one notch for loss-severity and two notches for non-performance risk, in accordance with Fitch's Global Bank Rating Criteria. This results in a rating for these securities similar to the rating that would be assigned had they been issued by the parent bank, PT Bank Rakyat Indonesia (Persero) Tbk (BRI; BBB-/AAA(idn)/Stable). The notching for loss-severity risk is to reflect the sukuk's subordination relative to senior unsecured instruments, the presence of a non-viability clause and the partial or full write-down feature at the point of non-viability. The additional two-notches for non-performance arises from deferral risk on the payment of coupon or principal of the instrument, with distributions required to be deferred and accumulated if such payment could cause BRIS's capital ratios to not comply with minimum regulatory requirements. BRIS's ratings reflect Fitch's expectation of a strong probability of extraordinary support from its parent, BRI, if needed. Fitch views BRIS as playing a key role in expanding BRI's sharia banking business in Indonesia. BRIS's National Long-Term Rating is rated one notch lower from its parent to take into account its limited significance in terms of contribution to the parent's overall franchise. RATING SENSITIVITIES Any changes in the standalone credit profile of the parent, BRI, would affect this issue's rating. Downward rating pressure may arise from significant deterioration in BRI's asset-quality and weakening of its loss-absorption buffers, particularly in a sharp protracted downturn. Fitch could widen the notching for loss-severity on the sukuk's rating to two if the incremental risk of the write-down feature becomes material. An upgrade of the parent's standalone credit profile may result from fundamental improvements in the operating environment, including in the capital markets and economy, better corporate governance and a more visible improvement in the bank's risk management culture. Contact: Primary Analyst Tomi Rustamiaji Analyst +62 21 2988 6810 PT Fitch Ratings Indonesia DBS Bank Tower, 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta 12940, Indonesia 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. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Sukuk (pub. 16 Aug 2016) here Global Bank Rating Criteria (pub. 15 Jul 2016) here National Scale Ratings Criteria (pub. 30 Oct 2013) 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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