Fitch Affirms Indonesia at BBB- ; Outlook Positive

Transcription

1. 7 /20/2017 [ Press Release ] Fitch Affirms Indonesia at 'BBB-'; Outlook Positive Fitch Affirms Indonesia at 'BBB-'; Outlook Positive Fitch Ratings-Hong Kong-19 July 2017: Fitch Ratings has affirmed Indonesia's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB-' with a Positive Outlook. The issue ratings on Indonesia's senior unsecured foreign- and localcurrency bonds and foreign-currency sukuks - issued through Perusahaan Penerbit SBSN Indonesia - have also been affirmed at 'BBB-'. The Country Ceiling has been affirmed at 'BBB' and the Short-Term Foreign- and Local-Currency IDRs at 'F3'. The senior unsecured short-term issues have also been affirmed at 'F3'. KEY RATING DRIVERS Indonesia's ratings balance a low government debt burden, favourable growth outlook and limited sovereign exposure to bankingsector risks with weak - but strengthening - external finances compared with 'BBB' category peers and some lagging structural factors, including governance standards and a still difficult - but improving - business environment. The Indonesian authorities have continued to strengthen their macroeconomic policy record with a focus on macro stability and sustainable growth since Fitch revised Indonesia's Outlook to Positive from Stable in December 2016. Bank Indonesia's (BI) monetary and exchange-rate policies have supported a further increase in its foreign-exchange buffers, which reached a historic high of USD125 billion in May 2017, 35% above the low after BI's "taper tantrum" interventions in the summer of 2013. The slowdown in the fast rise in corporate external debt, in part due to BI's external borrowing requirements implemented since 2015, has also contributed to improved resilience of Indonesia's external finances. Nevertheless, Indonesia is still dependent on commodities for its exports and portfolio inflows to finance a persistent, but manageable, current-account deficit, which Fitch expects to remain roughly stable at close to 2.0% of GDP through 2019. Credible GDP growth assumptions in the revised budget for 2017 were recently approved in parliament, illustrating an apparent shift away from the overly ambitious annual growth targets adopted in budgets in the past several years. Fitch expects real GDP growth to rise to 5.2% in 2017 and 5.6% in 2018, from 5.0% in 2016. Indonesia's GDP growth still compares favourably with peers ('BBB' median: 2.8% in 2017), even though it is unlikely to soon return to the above-6% levels it enjoyed prior to the collapse of the commodity boom in 2012. A strong structural reform drive since September 2015 is gradually improving the difficult business environment, including a reduction in the number and duration of bureaucratic procedures and a more standardised approach to minimum wage setting. The reform agenda could lose momentum if political and religious frictions become a distraction from economic policy-making as the presidential elections of 2019 approach. The Jakarta gubernatorial elections held earlier this year illustrate how such issues can dominate the electoral discourse. In addition, measures perceived as favouring domestic businesses could deter foreign investment. Fitch's forecast for low general government debt burden of 28.2% of GDP in 2017 compares well with the 'BBB' median of 41.2% and helps anchor Indonesia's investment grade rating. Fitch does not expect government debt to rise significantly as the government is adhering to a self-imposed budget-deficit ceiling of 3% of GDP. The benefits of the tax authority's enhanced access to domestic and foreign bank data after the tax amnesty, as well as recently issued legislation on reporting requirements and negotiated international treaties for data exchange, are still uncertain, but form an upside risk to the government's very low revenue intake in the coming years. Fitch considers the sovereign's exposure to banking-sector risks as limited. Private credit represents only 36.9% of GDP and the banking system's health is relatively strong, although risks built up in the previous credit cycle imply a more challenging operating environment. This has led to deferral of private-sector capital expenditure and has increased gross non-performing loans to 3.1% of total assets in April 2017, from a low of 1.8% at end-2013. However, the banking sector's capital adequacy ratio is strong, at 22.6% in April 2017. The Indonesian economy continues to exhibit some structural weaknesses, notwithstanding the improvements resulting from the reform agenda, and is less developed on a number of metrics than many of its peers. Average per capita GDP remains low at USD3,823 compared with the 'BBB' range median of USD10,459, while governance continues to be weak, as illustrated by a low score for the World Bank governance indicator (41st percentile versus the 'BBB' median of 58th percentile) and Transparency International's corruption index (90th out of 176 countries). SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Indonesia a score equivalent to a rating of 'BBB' on the Long-term Foreign-Currency IDR scale. https://www.fitchratings.com/site/pr/1026742 1/4
2. 7 /20/2017 [ Press Release ] Fitch Affirms Indonesia at 'BBB-'; Outlook Positive Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final Long-Term Foreign-Currency IDR by applying its QO, relative to rated peers, as follows: - External Finances: -1 notch, to reflect Indonesia's vulnerability to changes in market sentiment and portfolio shifts, as a large part of government debt is held abroad or financed in foreign currency, and its relatively high net external debt. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign-Currency IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES The main factors that, individually or collectively, could trigger positive rating action are: - Continued strengthening of the external finances, making Indonesia less vulnerable to sudden changes in foreign-investor sentiment, for instance through lower commodity export dependence or structurally higher foreign direct investment inflows. - Continued improvement of the business environment, tax compliance and governance standards. - Maintenance of strong and sustainable GDP growth. The rating Outlooks are Positive. Hence, Fitch does not anticipate a high probability of negative action over the forecast period. However, the main factors that could see the ratings revert to Stable Outlook are: - A sharp and sustained external shock to foreign and/or domestic investors' confidence with the potential to cause external financing difficulties. - A rise in the public debt burden, for example caused by breaching the budget-deficit ceiling. - A weakening in macroeconomic prospects, for example from a change in the authorities' focus on monetary stability or reforms to the business environment. KEY ASSUMPTIONS - The global economy performs broadly in line with Fitch's Global Economic Outlook (June 2017) Contact: Primary Analyst Thomas Rookmaaker Director +852 2263 9891 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Sagarika Chandra Associate Director +852 2263 9921 Committee Chairperson Ed Parker Managing Director +44 20 3530 1176 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com The following issuer(s) did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure: Perusahaan Penerbit SBSN Indonesia III Applicable Criteria Country Ceilings (pub. 16 Aug 2016) (https://www.fitchratings.com/site/re/885997) https://www.fitchratings.com/site/pr/1026742 2/4
3. 7 /20/2017 [ Press Release ] Fitch Affirms Indonesia at 'BBB-'; Outlook Positive Criteria for Rating Sukuk (pub. 16 Aug 2016) (https://www.fitchratings.com/site/re/885806) Sovereign Rating Criteria (pub. 18 Jul 2016) (https://www.fitchratings.com/site/re/885219) Additional Disclosures Dodd-Frank Rating Information Disclosure Form (https://www.fitchratings.com/site/dodd-frank-disclosure/1026742) Solicitation Status (https://www.fitchratings.com/site/pr/1026742#solicitation) Endorsement Policy (https://www.fitchratings.com/regulatory) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS (https://www.fitchratings.com/understandingcreditratings). 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 (https://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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT HTTPS://WWW.FITCHRATINGS.COM/SITE/REGULATORY (https://www.fitchratings.com/site/regulatory). FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United https://www.fitchratings.com/site/pr/1026742 3/4
4. 7 /20/2017 [ Press Release ] Fitch Affirms Indonesia at 'BBB-'; Outlook Positive States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Solicitation Status Fitch Ratings was paid to determine each credit rating announced in this Rating Action Commentary (RAC) by the obligatory being rated or the issuer, underwriter, depositor, or sponsor of the security or money market instrument being rated, except for the following: Endorsement Policy - Fitch's approach to ratings endorsement so that ratings produced outside the EU may be used by regulated entities within the EU for regulatory purposes, pursuant to the terms of the EU Regulation with respect to credit rating agencies, can be found on the EU Regulatory Disclosures (https://www.fitchratings.com/regulatory) page. The endorsement status of all International ratings is provided within the entity summary page for each rated entity and in the transaction detail pages for all structured finance transactions on the Fitch website. These disclosures are updated on a daily basis. https://www.fitchratings.com/site/pr/1026742 4/4