Moody's Investors Service has today affirmed PT Federal International Finance (FIF)'s Baa2 long-term local and foreign currency issuer ratings, and Prime-2 (P-2) short-term local and foreign currency issuer ratings - Photo by FIF Group

Indonesia got a good news from European discrimination against domestic palm oil products because of the raising of world crude palm oil (CPO) price for increasing demand from India. In addition, the positive sentiment of the US-China trade agreement also has the potential to hoist CPO prices even higher.

Singapore (TheInsiderStories) – Moody’s Investors Service has today affirmed PT Federal International Finance (FIF)’s Baa2 long-term local and foreign currency issuer ratings, and Prime-2 (P-2) short-term local and foreign currency issuer ratings.

Moody’s has also affirmed the company’s long-term foreign currency senior unsecured medium-term note (MTN) program rating of (P)Baa2, as well as its long-term foreign currency senior unsecured rating of Baa2.

The entity-level outlook is stable.Moody’s has also withdrawn the outlooks on existing instrument ratings of FIF for its own business reasons.

The Baa2 long-term ratings incorporate FIF’ Ba2 standalone assessment and a three-notch rating uplift based on Moody’s assessment that the company will receive support from its parent, PT Astra International Tbk (IDX: ASII), in times of need.

The company’ Ba2 standalone assessment reflects the company’ position as a leading motorcycle financier in its core market of Indonesia (Baa2 stable), resulting in superior asset quality and profitability. At the same time, the standalone assessment also takes into consideration the company’ low liquidity buffer, with liquidity largely managed by matching the maturities of its assets and liabilities.

Moody’s expects the leasing company‘ asset quality will remain stable because of the prudent lending standards and strong collection process. In addition, the FIF’ focus on existing customers with good repayment records, particularly in the used motorcycle segment, will further mitigate credit risks.

The company’ problem loan ratio stood at 0.9 percent at March, 31 2019, largely unchanged from 1.0 percent a year earlier.

In assessing FIF’ asset quality, Moody’s has also factored in its
concentration to the low- and middle-income segments, which is inherent to motorcycle receivables and leaves the company vulnerable to swings in the domestic economic cycle.

FIF will continue to generate strong profitability, supported by growth in high yielding motorcycle loans and access to Astra International‘ extensive dealer network. The company’s return on assets remains among the highest in the industry, standing at 6.8 percent as end of March. This strong profitability will in turn support capitalization.

While FIF — as indicated — maintains a low liquidity buffer, the
associated risks are mitigated by the good credit quality and short
tenors of its outstanding receivables. At 31 March 2019, more than 60 percent of the company’ receivables were set to mature within one year. Moody’s expects Astra International will provide a “Very High” level of support to FIF in times of need.

FIF is largely owned and controlled by the parent. The finance company is also strategically important to the conglomerate, because it helps drive sales of Honda motorcycles — more than two-thirds of these motorcycles were bought on credit in 2018 — and contributes meaningfully to the latter’s bottom line.

In 2018, the company’ net profit accounted for more than 8 percent of Astra International‘ consolidated income.

An upgrade of FIF’ ratings is unlikely because the ratings are already
at the same level as Indonesia’s sovereign Baa2 rating, which is on a
stable outlook. However, the ratings could be downgraded if there is a significant deterioration in the company’s asset quality, which could also weaken its profitability and liquidity.

A lower willingness or ability of Astra International to provide support could also exert downward pressure on FIF’ ratings. Headquartered in Jakarta, Federal International Finance reported total assets of Rp35.5 trillion at first quarter of 2019.

US$1: Rp14,000

Written by Staff Editor, Email: theinsiderstories