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Fitch Affirms Sarana Multi Infrastruktur at 'AA+(idn)'; Outlook Stable
October 13, 2016 / 3:17 PM / a year ago

Fitch Affirms Sarana Multi Infrastruktur at 'AA+(idn)'; Outlook Stable

(The following statement was released by the rating agency) JAKARTA, October 13 (Fitch) Fitch Ratings has affirmed the National Long-Term Rating on Indonesia-based PT Sarana Multi Infrastruktur (Persero) (SMI) at 'AA+(idn)'. The Outlook is Stable. Fitch has also published the rating on SMI's USD300m on-shore MTN programme at 'AA+(idn)'. 'AA+(idn)' Long-Term National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherently differs only slightly from that of the country's highest rated issuers or obligations. The affirmation of the National Rating on SMI reflects Fitch's continued expectation that the government would extend the company strong extraordinary support, if needed. SMI provides financing to investors in public-private partnership (PPP) schemes. Fitch believes adequate investment in infrastructure is vital for the country to achieve its economic growth targets. KEY RATING DRIVERS Strategic Importance Attribute Assessed as Stronger: The provision of financing to investors for Indonesia's PPP programmes is a high priority for the government. SMI's role widened in 2015 as it took over the government investment fund managed by Pusat Investasi Pemerintah (PIP). SMI has received on-going capital injections since its inception in February 2009 from its owner the Ministry of Finance (MoF); a further IDR20trn of capital was injected through an asset transfer from PIP in 2015 and Fitch expects the ministry to inject IDR4.16trn of capital before end-2016. Control Attribute Assessed as Stronger: SMI reports directly to the MoF; three members on the board of commissioners are appointed by the MoF and there are two independent commissioners. Annual budgets, the board of directors' remuneration, long-term plans, and board composition are approved by the MoF at the SMI general-shareholder meeting. SMI is audited by an independent public accounting firm annually, and is subject to audits by the state auditor and the Financial Services Authority (Otoritas Jasa Keuangan, or OJK) once every three years. Integration Attribute Assessed as Midrange: SMI's capacity to provide financing for infrastructure projects relies on its paid-up capital, in the form of state capital injections derived from the state budget and from borrowings. The government has injected IDR24.3trn of capital into SMI. The transfer of the government investment fund managed by PIP to SMI in 2015 was classified as a capital injection of IDR18trn (relating to a transfer of assets), with an additional cash injection of IDR2trn. The capital injections each year reflect a commitment to accelerate infrastructure development through various financing schemes. The paid-up capital is likely to bolster the confidence of the private sector in SMI. Fitch expects the government to further increase SMI's capital by IDR4.16trn before end-2016. Fitch will monitor the transformation of SMI into an infrastructure lending institution and, depending on the commitment of the central government, this could have a positive impact on this attribute. Legal Status Attribute Assessed as Midrange: SMI is one of five state-owned entities in Indonesia that report directly to the Ministry of Finance. The government plans for SMI to function as an infrastructure bank, which will make it eligible for certain tax incentives and subject it to regulations by the OJK. Potential Risk: Fitch believes that downside risks for SMI bondholders may be quite pronounced in a difficult economic environment, given the concentration of its loans in the country. The bulk of SMI's loans were extended within the last four years, so it will only be possible to assess the company's asset-quality track record in the medium term, when its loan book becomes more seasoned. Infrastructure Financing: SMI has focused on increasing lending to infrastructure projects; total loans granted rose to IDR19.7trn in 2015 from IDR6.6trn the previous year. A large part of the growth was the loan book transferred from PIP. Projections from SMI indicate that loans will increase to around IDR103trn by end-2021. SMI's main source of revenue is interest income - from loans and returns on investments from its substantial liquidity. Interest income will increase as SMI increases its lending activities. Increasing Leverage: Regulations limit SMI's leverage to 10x equity, although management has said it will limit future borrowings to 3x equity. SMI has an outstanding subordinated loan of USD195.85m to PT Indonesia Infrastructure Finance (IIF). The loan was provided to IIF via the government and SMI, from the Asian Development Bank (ADB) and the World Bank. SMI is likely to increase its debt to around IDR92.7trn by end-2021 to support loan growth, but this is still within established equity limits. RATING SENSITIVITIES We will monitor SMI's role as an infrastructure development entity and assess in the future whether this will make it more closely integrated with the sovereign, which could have a positive impact on the national rating. Contact: Primary Analyst Priscilla Tjitra Associate Director +62 21 2988 6809 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Committee Chairperson Vladimir Redkin Senior Director +7 495 956 9901 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. Additional information is available on Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating of Public-Sector Entities - Outside the United States (pub. 22 Feb 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. 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