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Jakarta, 15 June 2021

Fitch Assigns Perusahaan Pengelola Aset First-Time 'AA(idn)'; Rates Proposed Notes 'AA(idn)'

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Fitch Ratings – Hong Kong – 16 Jul 2021: Fitch Ratings has assigned PT Perusahaan Pengelola Aset (Persero) (PPA) a National Long-Term Rating of ‘AA(idn)’. The Outlook is Stable.

In addition, Fitch has assigned PPA’s proposed up to IDR3 trillion of notes a rating of ‘AA(idn)’. The notes are rated in line with PPA’s Long-Term IDR, as the notes constitute direct, unsubordinated, unsecured obligations of the company and rank pari passu with all other unsecured and unsubordinated obligations of PPA.

PPA is the only public-policy institution of the Indonesian government (BBB/Stable) that is engaged in asset management. It is administered by Ministry of State-Owned Enterprises (MSOE), which uses it to manage assets of distressed state-owned enterprises (SOEs). PPA was established to continue the work of the Indonesian Bank Restructuring Agency, which was created in the aftermath of the Asian financial crisis in 1998.

‘AA(idn)’ National Ratings denote expectations of a very low level of default risk relative to other issuers or obligations in the same country or monetary union. The default risk inherent differs only slightly from that of the country’s highest rated issuers or obligations.

KEY RATING DRIVERS

‘Very Strong’ Status, Ownership and Control: Fitch’s assessment of the attribute is based on the state’s 100% ownership and appointment of board commissioners and directors. PPA is under strong control by MSOE, which is reflected in the direct assignment of SOEs’ restructuring and its monitoring of the progress. PPA is established as a limited liability company that is subject to bankruptcy procedures. However, Fitch believes that this is mitigated by strong control and oversight by the government, which underpins the assessment.

PPA is undergoing a transformation as part of MSOE’s programme to group Indonesian SOEs into several clusters based on industries. PPA will be grouped under the Danareksa-PPA cluster. The assessment of this attribute factors in our expectation that there will not be any material changes to the existing framework of government control.

‘Very Strong’ Support Record: PPA has received funding support through capital injections from the government since its inception. The government provided capital injections totalling IDR3.5 trillion from 2008 to 2016 to fund the restructuring of SOEs. The government transferred its minority stakes in two listed companies and three unlisted companies, with fair value of IDR2.95 trillion as of April 2021, to PPA to strengthen its capital structure.

‘Moderate’ Socio-Political Implications of Default: The company is one of the government’s two crisis prevention tools. The other is deposit insurer Lembaga Penjaminan Simpanan (LPS). PPA is the only government institution that manages SOEs, local governments, local government-owned entities in distress, and banks’ non-performing loans (NPLs).

Fitch believes PPA may become more important to the government as it manages the impact of the Covid-19 pandemic on SOEs and NPLs nationwide. PPA’s policy role and regulations set a high barrier to entry to competitors and it will not be easily substituted in the short to medium term. However, the company’s limited activities in NPL management now restrains the overall socio-political implications assessment.

‘Moderate’ Financial Implications of Default: PPA is an important government-related entity (GRE) tasked with resolving distressed assets and SOEs. While bank restructuring or resolution falls under the purview of LPS, PPA is still integrated with the country’s banking and SOEs system. A default by PPA could have material implications for the state’s credibility. However, the company has only limited debt instruments issued in capital markets. Hence, we view that a default would have a moderate impact on the availability and cost of financing by the government and other GREs.

‘bbb(idn)’ Standalone Credit Profile (SCP): We assess PPA’s SCP at ‘bbb(idn)’, based on its ‘Midrange’ revenue defensibility, ‘Midrange’ operational risk and ‘Weaker’ financial profile, with a net debt/EBITDA ratio of 28.7x at end-2020.

‘Midrange’ Revenue Defensibility: The assessment reflects PPA’s diversified investments and limited competition in managing distressed SOEs, although management of the distressed SOEs is directed by the government. The company’s new businesses in NPL management and a special-situation fund may subsidise its policy activities and have a wider customer base. The assessment also reflects regular subsidies from the government to finance SOE restructuring and flexibility to charge investment fees for funding from third parties.

‘Midrange’ Operating Risk: The majority of PPA’s costs are market-based financial costs. At end-2020, most of PPA’s borrowings were bank loans with revolving and floating-rate structures, while 32% of borrowings were fixed-rate, bullet-structure bonds. Hence, PPA could require refinancing, with the nearest maturities being in 2021 and 2022 of IDR300 billion and IDR450 billion, respectively. The refinancing risk is mitigated by PPA’s established relationships with banks and access to capital markets. PPA currently has limited US-dollar borrowings, which are invested on US-dollar assets.

PPA’s resource-management risk is also assessed as ‘Midrange’. Funding is a crucial resource and PPA has strong banking relationships, particularly with state-owned banks, as well as a record of government support through capital injections. In addition, PPA has demonstrated adequate capital planning and liquidity management.

DERIVATION SUMMARY

Fitch has classified PPA as a GRE, reflecting the entity’s control and ownership by the government of Indonesia, the government’s support record as well as the socio-political and financial impact on the government from a PPA default. PPA’s ratings are derived from the GRE support score of 30, based on the attributes under Fitch’s Government-Related Entities Rating Criteria, and combined with an SCP of ‘bbb(idn)’.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:
– Increase in incentive for the government to provide support, as well as stronger socio-political and financial implications of a default, may trigger positive rating action.
– A substantial improvement in PPA’s standalone credit profile.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
– Deterioration or reduction in direct or indirect government influence on the entity may lead to a rating downgrade.
– Deterioration in the socio-political and financial implications of a default may result in negative rating action.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS

PPA’s rating is linked to the Indonesian sovereign rating.

RATING ACTIONS