Fitch has assigned PT Sarana Multi Infrastruktur (SMI) a Long-Term Foreign- and Local-Currency Rating of ‘BBB-‘ and Short-Term Foreign-Currency Rating of ‘F3’. At the same SMI’s National Long-Term Rating has been upgraded to ‘AA+(idn)’ from ‘AA(idn)’. The Outlook on the long-term ratings is Stable.
SMI’s international ratings are equalised with the Indonesia sovereign (BBB-/Stable), reflecting ownership by the central government through the Ministry of Finance (MOF) and the important strategic role the entity has in the development of Indonesia’s infrastructure. SMI’s national rating was upgraded as a result of the re-assessment of the link with the government under Fitch’s Rating of a Public Sector Entity methodology.
KEY RATING DRIVERS
Close Link to the Sovereign: SMI is a state-owned enterprise that is 100%-owned by the government of Indonesia through the MOF. SMI’s budget is not consolidated into the general government budget. However, the budget is approved by the MOF and capital injections are included in the government’s budget.
Strategic Role in Economic Development: The national budget can only finance up to 65% of the country’s required infrastructure development, with private investment expected to make up the shortfall. Fitch believes SMI’s long-term financing can help to support the growth of public-private partnerships for infrastructure projects throughout Indonesia, making the company strategically important to the country’s economic development.
Ongoing Capital Injections: The government provided capital to the company to start its operations. SMI’s paid-up capital was IDR4trn at end-2012 and Fitch expects it to grow to IDR8trn by the end of FY17 due to continued government injections. SMI will leverage its paid-up capital to a maximum of 3x equity. Close Control and Monitoring: SMI’s Board of Commissioners and Board of Directors meet regularly, providing a mechanism to actively supervise the company’s management. In addition as the sole shareholder, the MOF has the authority to approve the company’s budget and long-term plans, to appoint and dismiss members of both boards, to approve SMI’s annual report and ratify the Board of Commissioner’s supervisory report.
Adequate Performance: Fitch forecasts SMI’s net income after tax to increase over the budget period to IDR214bn in FY14 from IDR93bn in FY12. The growth in net income is primarily driven by net operating income increasing to IDR272bn in FY14 from IDR119bn in FY12 as a result of increased lending activities. Nonetheless, profit maximisation is not the ultimate goal for this company due to its primary policy role.
Limited Financial Liabilities: SMI currently has no outstanding borrowings beyond the subordinated loan to its 34.3%-owned subsidiary, IIF. The loan has been provided to IIF via the government and SMI from ADB and World Bank. However, SMI has said it plans to issue IDR1,000bn (USD100m) of debt in FY14 to fund growth. SMI’s leverage cannot exceed a regulatory limit of 10x equity, although management has said they will limit future borrowings to 3x of equity. The Indonesian government created SMI in 2009 in response to the need to provide long-term financing for infrastructure projects in the country. Providing long-term financing attracts more private participation in public-private partnership schemes in Indonesia. The sectors eligible for financing from SMI are power, water, roads and bridges, transportation, sewerage and solid waste, irrigation, telecommunications, and oil and gas.
An upgrade of Indonesia’s sovereign rating, with continued strong implicit support for SMI, would trigger a rating upgrade, as SMI is credit linked to the sovereign.
A downgrade of Indonesia or negative changes to SMI’s governance that lead to a dilution of the government’s shareholding or control would trigger a rating downgrade