December 19, 2016 / 6:10 AM / a year ago

Fitch Affirms PT Sinar Mas Multifinance's 'A-(idn)' Rating

(The following statement was released by the rating agency) JAKARTA, December 19 (Fitch) Fitch Ratings Indonesia has affirmed PT Sinar Mas Multifinance's (SMMF) National Long-Term Rating of 'A-(idn)', National Short-Term Rating of 'F2(idn)' and its senior unsecured debt rating of 'A-(idn)'. The Outlook is Stable. 'A' National Long-Term 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. 'F2' National Short-Term Ratings indicate a good capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. However, the margin of safety is not as great as in the case of the higher ratings. KEY RATING DRIVERS NATIONAL RATINGS The National Ratings are driven by Fitch's expectations of moderate probability of extraordinary support from its 99.99% shareholder, PT Sinar Mas Multiartha Tbk (SMMA), in time of need. SMMA is a holding company in the Sinar Mas Group that focuses on the integrated financial services sector, including banking, insurance and multi-finance. The support, however, is limited as Fitch views SMMF as a subsidiary of limited importance based on its small contribution to the overall franchise of SMMA compared to its insurance or banking affiliates. SMMF provides consumer financing, factoring, and leasing services, but its total assets and equity only accounted for around 6% of SMMA's consolidated results at end-September 2016. SMMF's standalone credit profile reflects its small franchise, high appetite for financing growth and weak asset quality, which are balanced against its satisfactory capitalisation. SMMF is a small financing company, accounting for less than 1% of the industry's total net managed receivables at end-September 2016. Its receivables portfolio grew 21% during 9M16, far higher than the industry's growth of around 2%. Fitch expects the rapid growth of SMMF's financing book to raise the risks of asset-quality deterioration in the future. SMMF's NPL ratio (loans overdue more than 90 days) was 2.5% at end-September 2016, higher than industry average of 2.2%, and Fitch expects asset quality to remain under pressure in 2017 due to continuing challenging economic conditions. SMMF's profitability improved during 9M16, as reflected in its higher ROA of 2.3% (end-2015: 1.6%), though it remains below the industry average of 3.7%. Fitch expects further improvement in the company's earnings performance to be tempered by potentially higher credit costs as a result of its high growth. SMMF has maintained a low leverage against its high risk appetite; its debt-to-equity ratio of 1.9x was markedly lower than the industry average of 3.0x. DEBT RATINGS SMMF's senior unsecured bonds are rated at the same level as its National Long-Term Rating, in line with Fitch criteria. RATING SENSITIVITIES NATIONAL RATINGS Any weakening in the linkages between SMMF and SMMA, such as a significant reduction in SMMA's ownership or intra-group business referrals, or lower likelihood of financial support from SMMA, may lead to negative rating action, although Fitch considers this prospect to be remote in the foreseeable future. A significant expansion in SMMF's role in helping its bank affiliate to provide comprehensive retail banking services, which may strengthen SMMA's franchise, or an otherwise significant increase in SMMF's contribution to SMMA's credit profile, might have a positive impact on SMMF's ratings. DEBT RATINGS Any changes in the issuer's National Ratings would affect the issue rating. Contact: Primary Analyst Tomi Rustamiaji Analyst +6221 29886810 PT Fitch Ratings Indonesia DBS Bank Tower Level 24 Jl. Prof. Dr. Satrio Kav.3-5 Jakarta, Indonesia 12910 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7601 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. 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. 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