Fitch Ratings has affirmed PT Astra Sedaya Finance's (ASF) Long-Term Issuer Default Rating (IDR) at 'BBB' and Short-Term IDR at 'F3'.
Simultaneously, Fitch Ratings Indonesia has affirmed ASF's National Long-Term Rating at 'AAA(idn)' and National Short-Term Rating at 'F1+(idn)'. The Outlooks on the long-term ratings are Stable. The ratings on the company's bond programmes and issuance have also been affirmed.
'AAA' National Long-Term Ratings denote the highest rating assigned by the agency in its National Rating scale for that country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country or monetary union.
'F1' National Short-Term Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. Under the agency's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country or monetary union. Where the liquidity profile is particularly strong, a '+' is added to the assigned rating.
Fitch has also assigned ASF a Shareholder Support Rating of 'bbb' in line with our updated Non-Bank Financial Institutions Rating Criteria dated 31 January 2022.
Key Rating Drivers
Support-Driven Ratings: ASF's ratings are driven by Fitch's expectation of a high probability of extraordinary support from its parent, PT Astra International Tbk (AI), if needed. AI is one of Indonesia's largest companies by market capitalisation, with leadership in the country's automotive and heavy equipment industries. ASF is wholly owned by AI, which is in turn 50.1% owned by Hong Kong-based Jardine Matheson Group's Jardine Cycle & Carriage Ltd.
Core Subsidiary: ASF provides financing for the purchase of cars distributed by AI and helps the parent maintain market leadership in Indonesia's automotive industry. Fitch's assessment of potential shareholder support from AI incorporates our view that a default by ASF would imply considerable reputational risk to AI, given the overlap in their funding providers and shared branding.
We also consider ASF's role in supporting AI's core automotive business and meaningful contribution to the parent's financial-service business, as well as the close management and operational integration between the two.
Moderate Standalone Profile: ASF's standalone credit profile does not drive its ratings, but reflects the company's significant auto financing franchise, driven by longstanding support from its parent, improving asset quality and profitability, moderate leverage as well as steady access to funding and liquidity.
ASF's non-performing financing ratio of 0.65% at end-1H22 (2021: 0.99%) remained well below the industry average of 2.8%. Its annualised pretax income/average assets improved to 5.2% in 1H22 (2021: 4.4%), driven by lower funding costs.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Any deterioration in AI's credit profile, or perceived weakening in AI's support propensity, would lead to negative action on ASF's long-term ratings. The latter may result from a material reduction in AI's ownership, greater management independence at ASF, or a weakening strategic role for ASF relative to its parent, although Fitch does not expect these changes in the near-to-medium term.
The Short-Term IDR would be resilient to a one-notch downgrade in ASF's Long-Term IDR, but would be downgraded in the event of a two-notch downgrade in the Long-Term IDR to the 'BB' category on the international scale. The National Short-Term Rating would be resilient to at least a three-notch downgrade in the National Long-Term Rating.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch may take positive action on ASF's Long-Term IDR in the event of a significant improvement in AI's credit profile - indicating a strengthened ability to support ASF - along with an upgrade of Indonesia's Country Ceiling.
The Short-Term IDR may be upgraded to 'F2' if Fitch assesses that the short-term financial flexibility of AI has improved materially.
There is no upside to ASF's National Ratings as they are at the highest point on the national scale.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
ASF's foreign-currency bond programme is rated at the same level as its Long-Term IDR, while its rupiah debt programmes and associated bonds are rated on par with its National Long-Term Rating in accordance with Fitch criteria. This is because the instruments represent direct and senior obligations of the company and rank equally with all its other senior obligations.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The ratings on ASF's foreign- and local-currency denominated bonds would move in tandem with changes in the Long-Term IDR and National Long-Term Rating, respectively.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579
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
ASF's ratings reflect Fitch's expectation of a high probability of extraordinary support from its parent, AI, if needed.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visitwww.fitchratings.com/esg