Fitch Ratings Indonesia has affirmed PT Surya Artha Nusantara Finance's (SANF) National Long-Term Rating at 'AA(idn)', with a Stable Outlook.

Its National Short-Term Rating has been affirmed at 'F1+(idn)'.

'AA' National Long-Term 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.

'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.

Key Rating Drivers

Support-Driven Ratings: SANF's ratings reflect Fitch's view of a moderate likelihood of extraordinary support from its 60% shareholder, PT Astra International Tbk (AI), if needed. AI is one of Indonesia's largest conglomerates, with market leadership in the domestic automotive and heavy-equipment sectors, and is 50.1%-owned by Hong Kong-based Jardine Matheson Group's Jardine Cycle & Carriage Ltd.

Heavy-Equipment Financier: SANF provides financing services for heavy-equipment purchases. The business caters mainly to AI's heavy-equipment arm, PT United Tractors Tbk (UT), with affiliated brands such as Komatsu and UD Trucks dominating the share of units financed, although the company's underwriting process is not brand-focused. SANF also provides consumer financing and factoring services to AI's affiliates.

Stronger Support Provider: Fitch assesses that AI would have the ability to support SANF due to the parent's stronger credit profile and significantly larger balance sheet. SANF's assets and equity comprised a relatively small share of its major shareholder's consolidated assets and equity, at 1.5% and 0.4%, respectively, as of June 2023.

Limited Support Propensity: Fitch believes AI's propensity to support SANF is limited by the subsidiary's business model, which focuses on heavy-equipment financing, a segment we think carries lower importance to AI than the automotive segment. Our assessment also considers SANF's smaller contribution to AI's overall business, and our belief of a lower reputational risk if SANF were to default, compared with AI's larger financing subsidiaries.

This is counterbalanced by SANF's longstanding contribution as AI's financing arm for the heavy-equipment segment, which has helped its sister company UT maintain its leadership of the sector, and a high level of integration with AI's strategic direction despite the presence of Marubeni as a significant minority shareholder in SANF.

Cyclically Sensitive Exposures: SANF's standalone credit profile does not drive its ratings, but reflects its small franchise and higher-risk profile due to the cyclical nature of its business. This is balanced by acceptable management and governance as well as adequate capitalisation and funding that benefits from its association with AI and Marubeni.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Any deterioration in AI's credit profile is likely to result in negative action on SANF's National Long-Term Rating. Fitch may also downgrade the long-term rating if we perceive that AI's propensity to support its subsidiary has weakened. Indications of such changes may include a significant decline in AI's shareholding in SANF or a reduction in SANF's contribution to the AI group, which could stem from sustained lower contribution of heavy-equipment sales to AI's revenue or a sustained lower proportion of UT's heavy-equipment sales financed by SANF. Fitch does not expect these scenarios in the next 12-18 months.

The National Short-Term Rating would be resilient to at least a one-notch downgrade of the National Long-Term Rating.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Fitch may take positive action on the National Long-Term Rating if we assess that AI's credit profile has improved, or if stronger synergies between SANF and its parent suggest an increase AI's propensity to support its subsidiary. This would include a higher contribution from SANF to AI's overall business, a rising share of UT's heavy-equipment sales financed by SANF, or a greater emphasis by AI on its heavy-equipment distribution business.

There is no upside to the National Short-Term Rating, which is at the highest point of the relevant scale.

DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS

SANF's senior bonds are rated at the same level as its National Long-Term Rating, as the bonds constitute the company's direct and senior obligations and rank equally with all its other senior obligations.

DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES

Any movement in SANF's National Long-Term Rating would result in similar action on its senior debt ratings.

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

SANF's rating is driven by Fitch's expectation of extraordinary support, if needed, from its major shareholder, AI.

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