MITSUI & CO., LTD.
Fitch Ratings Indonesia has affirmed the National Long-Term Rating of
The Outlook is Stable.
'
Key Rating Drivers
Shareholder Support Underpins Ratings: BAF's National Long-Term Rating is driven by Fitch's expectation of extraordinary support from its majority owner,
Yamaha Financier: BAF operates as a captive financing company to support sales of Yamaha motorcycles in
Considerable Ability to Support: Our assessment of parental support is premised on Mitsui's robust ability to provide any required support - we believe Mitsui has a significantly stronger credit profile than BAF, and the subsidiary's total assets accounted for less than 1% of Mitsui's consolidated assets in 1H22.
Strong Propensity to Support: Fitch's view of support is also based on the high reputational risk to Mitsui if BAF were to default. We believe such a scenario would tarnish Mitsui's reputation and may have a negative impact on other parts of the conglomerate group because of its majority ownership and legal commitments. Mitsui also provides BAF with corporate guarantees to support part of its third-party borrowing. Fitch believes these legal commitments from Mitsui illustrate its support for BAF.
Standalone Credit Profile: BAF's standalone profile does not drive its National Long-Term Rating, but reflects Fitch's view of its modest franchise (3% of total finance industry receivables as of 1H22), a non-performing financing (NPF) ratio higher than the industry average, elevated leverage tolerance with a debt/tangible equity as high as 7x in earlier years, and higher risk appetite as reflected in its focus on two-wheeler and other higher-risk financing segments.
With that said, BAF's profitability recovered in 2021 due to strong growth after the impairment loss in 2020. Its funding profile is bolstered by ordinary parental support that enables more stable funding access.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Parent's Credit Profile: The ratings are sensitive to Fitch's assessment of the ability and propensity of the parent to provide extraordinary support to BAF, if needed. Any material weakening in the parent's credit profile would also put pressure on BAF's support-driven ratings.
Propensity to Support: Fitch may take negative rating action if we perceive Mitsui's propensity to provide extraordinary support to have diminished. This would be likely to stem from consistently poor performance from BAF, a reduction in Mitsui's ownership, or lower perceived reputational and legal risks to Mitsui in the event of a BAF default.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
No Upside: There is no upside to BAF's national rating and issue ratings, as they are at the highest point on the national scale.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
Seniority of Issue Ratings: BAF's bond and sukuk programmes and issuance under the programme are rated at the same level as its National Long-Term Rating in accordance with Fitch's criteria, as they represent BAF's direct and senior obligations and rank equally with all its other senior obligations. Most of BAF's notes and programmes are partially covered by receivables collateral, but we typically do not consider such collateral as a rating enhancement - given the difficulties in enforcing such collateral under Indonesian legal jurisdiction.
Sukuk Rating: The ratings for the sukuk programme and issuance also take into consideration the sukuk's structure and documentation, which include the following features:
Half of the sukuk principal is secured by BAF's receivables and ranks pari passu with other secured creditors; the remaining half ranks pari passu with the company's other senior unsecured creditors.
At each payment or maturity date, BAF at all times is obliged to repay the full amount of the sukuk principal and periodic distribution amount. The company will be obliged to provide compensation in the event of late payment, which includes the accrued and unpaid periodic distribution amount.
If the value of the secured receivables falls to below 50% of the sukuk principal, BAF is required to add cash collateral equivalent to the decline.
Non-compliance of the sukuk to sharia principles may trigger an event of default on the sukuk.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative action/downgrade:
A downgrade of BAF's National Long-Term Rating would be mirrored in a downgrade of the issue ratings.
Factors that could, individually or collectively, lead to positive action/upgrade:
The rating is already at the highest point on the national scale, and thus there is no rating upside.
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
BAF's National Long-Term Rating is driven by Fitch's expectation of support from its majority owner, Mitsui.
RATING ACTIONS
Entity / Debt
Rating
Prior
Natl LT
Affirmed
senior unsecured
Natl LT
Affirmed
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