December 13, 2016 / 7:52 AM / 2 years ago

Fitch Affirms Indonesia's IIF at 'AAA(idn)'; Outlook Stable

(The following statement was released by the rating agency) JAKARTA, December 13 (Fitch) Fitch Ratings has affirmed PT Indonesia Infrastructure Finance's (IIF) National Long-Term Rating at 'AAA(idn)'. The Outlook is Stable. The long-term senior unsecured rating has also been affirmed at 'AAA(idn)'. 'AAA(idn)' National Ratings denote the highest rating assigned by the agency in its National Rating scale for Indonesia. 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. Fitch classifies IIF as a credit-linked public-sector entity due to its important role in developing Indonesia's infrastructure. The rating reflects IIF's strategic importance, strong state and supranational shareholders and tight monitoring by Indonesia's Ministry of Finance. KEY RATING DRIVERS Legal Status 'Stronger': IIFs shareholders include important multilateral agencies and development institutions. These include the Asian Development Bank (AsDB; AAA/Stable); the World Bank Group's International Finance Corporation; KfW's (AAA/Stable) wholly owned unit, Deutsche Investitions-und Entwicklungsgesellschaft; and an indirect shareholding by the government of Indonesia. Together, these entities own around 85% of IIF's capital. This attribute has greater weight in our rating decision than other factors due to the strength of the main multilateral shareholders. Control 'Stronger': The state oversees IIF through PT Sarana Multi Infrastruktur (Persero) (SMI, BBB-/Stable), a 100% state-owned entity. Six of IIF's nine commissioners represent the shareholders and the remainder are independent. Annual budgets, directors' remuneration, long-term plans and board composition are approved by shareholders at a general shareholder meeting. Strategic Importance 'Stronger': Fitch sees IIF as an important tool set up by the Indonesian government and multilateral agencies to involve the private sector in the country's infrastructure development by way of private-public partnerships and other modalities. The government encourages private-sector participation in infrastructure development and has set up three state-owned entities to facilitate finance in this area. IIF has received shareholder support through financing and capital injections. Integration 'Mid-Range': IIF's capacity to provide finance for infrastructure projects depends on its paid-up capital, subordinated loans, new debt and capital injections. IIF had IDR2.0trn in paid-up capital at end-2015. It had received two subordinated loans of USD100m each from the AsDB (USD99.5m drawn as of end-2015) and the World Bank (USD99.9m drawn as of end-2015). These loans were provided to the Indonesian government, distributed to SMI and then lent to IIF. Unlike state-owned enterprises, IIF does not intend at present to make a capital call. Additional capital injections are likely to come from an IPO or new equity investors. Improving Financial Performance: IIF's main revenue source is interest income from its lending activities. Income from loans reached IDR178.2bn in 2015, from IDR110.6bn in 2014. Fitch expects IIF's interest income to increase to IDR832.0bn by 2019, as its loan portfolio expands. IIF also has significant interest revenues from its investments due to their high liquidity. Investment interest income totalled IDR141.6bn in 2015, although Fitch expects this income source to decline as the company expands its lending activities. Financing Infrastructure Projects: IIF has increased its activities significantly, with total loans reaching over IDR3.3trn at end-2015. The company projects total lending to reach IDR13.0trn by 2019, all of which will be infrastructure related. IIF facilitates easier access to long-term financing to attract private infrastructure investment, with the ability to provide financing of up to 15 years. RATING SENSITIVITIES Changed Ownership, Weakened Links: A rating downgrade may be triggered by changes to IIF's legal status in the form of dilution of public-sector ownership to less than 75% or reduced Ministry of Finance influence on its board of commissioners. Contact: Primary Analyst Iwan Wisaksana Director +62 21 2988 6807 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: 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. 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