March 14, 2017 / 7:52 AM / 4 months ago

Fitch Rates Indonesia's Sukuk 'BBB-(EXP)'

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(The following statement was released by the rating agency) HONG KONG, March 14 (Fitch) Fitch Ratings has assigned Indonesia's Trust Certificate Issuance Programme and proposed US dollar-denominated sovereign global certificates (sukuk) issued through Perusahaan Penerbit SBSN Indonesia III (PPSI-III) under the programme expected ratings of 'BBB-(EXP)'. The expected rating is in line with Indonesia's Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'BBB-' with a Positive Outlook. The assignment of the final rating is contingent on the receipt of final documents materially conforming to information already reviewed. The rating reflects Fitch's view that cash flows supporting payment on the sukuk will constitute Indonesia's direct, unconditional, unsecured and general obligations, ranking equally with Indonesia's unsecured and unsubordinated marketable external debt. Fitch has given no consideration to the sukuk's underlying assets. KEY RATING DRIVERS The issuer and trustee, PPSI-III, is a legal entity in Indonesia set up solely for the purpose of issuing sharia-compliant securities of the Indonesian government in foreign currencies in the international markets. The sukuk rating is driven solely by Indonesia's IDR and senior unsecured rating of 'BBB-' due to the sukuk's structure and documentation, which include the following features in the ijara and wakala series: - On the scheduled dissolution or following the occurrence of a dissolution event, PPSI-III will have the right to require the state to purchase all of its rights, benefits and entitlements in, to and under the trust assets. - The state will have to purchase the assets at a price equal to the outstanding face amount of the sukuk plus any accrued and unpaid periodic distribution amounts and any accrued but unpaid supplementary rental. - In the ijara series, on or prior to each periodic distribution date, the state (as lessee) will pay PPSI-III rental due under the lease agreement for the ijara assets, which is intended to be sufficient to fund the periodic distribution amounts payable by PPSI-III. Furthermore, in the wakala series, the lessee will pay to PPSI-III an amount reflecting the rental due for any project assets following their completion and delivery. The programme includes a negative pledge provision that is binding on Indonesia, as well as financial reporting obligations, covenants and default acceleration terms. Certain aspects of the transaction will be governed by English law, while others will be governed by Indonesian law. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under any applicable law. However, the agency considers Indonesia's intentions to support PPSI-III and its obligations. Fitch's rating for the certificates reflects its belief that Indonesia will stand behind its obligations. Furthermore, by assigning ratings to the programme and certificates to be issued under it, Fitch does not express an opinion on the programme structure's compliance with sharia principles. RATING SENSITIVITIES The rating is sensitive to any changes in Indonesia's Long-Term Foreign-Currency IDR. Fitch affirmed Indonesia's Long-Term Foreign-Currency IDR at 'BBB-' in December 2016 and revised the Outlook to Positive. The Long-Term Local-Currency IDR is also 'BBB-' with a Positive Outlook. Contact: Primary Analyst Thomas Rookmaaker Director +852 2263 9891 Fitch (Hong Kong) Limited 19/F Man Yee Building 60-68 Des Voeux Road Central Hong Kong Secondary Analyst Sagarika Chandra Associate Director +852 2263 9921 Global Head Islamic Finance Bashar Al-Natoor Senior Director +971 4 424 1242 Committee Chairperson Jan Friederich Senior Director +852 2263 9910 Date of Relevant Rating Committee: 20 December 2016 Media Relations: Rose Connolly, London, Tel: +44 203 530 1741, Email: rose.connolly@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 Country Ceilings (pub. 16 Aug 2016) here Criteria for Rating Sukuk (pub. 16 Aug 2016) here Sovereign Rating Criteria (pub. 18 Jul 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. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. 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