Singapore, July 24, 2017 — Moody’s Investors Service has affirmed Astra Sedaya Finance (P.T.)’s (ASF) Baa3/P-3 long/short-term foreign- and/local currency issuer ratings. The ratings incorporate its baseline
credit assessment (BCA) of ba2, which Moody’s also affirmed , and two
notches of uplift based on Moody’s assessment of a very high likelihood
of support from its parent, Astra International Tbk (P.T.) (AI, unrated)
in times of need.
At the same time, Moody’s has affirmed ASF’s Baa3 foreign currency senior unsecured ratings and the (P)Baa3 senior unsecured MTN rating of ASF’s USD1 billion euro medium-term note (MTN) program.
The ratings outlook is stable.
ASF’s BCA takes into consideration the company’s: (1) strong franchise, underpinned by its strong relationship with AI; (2) manageable asset quality, despite weak operating conditions; and (3) relatively weak liquidity profile characterized by a heavy reliance on wholesale funding.
The Baa3 ratings incorporate a very high degree of support from its
parent, AI, which owns an 86% stake in ASF: 75% directly and 11% through its affiliate, Bank Permata TBK (P.T.) (Baa3 negative). Moody’s
assumption of a very high level of support is driven by the strong
strategic fit between AI’s auto business and ASF, AI’s high level of
management involvement in ASF, and the reputational risk to AI should ASF default, given the use of the Astra brand name.
Moody’s notes AI’s track record of supporting the capital needs of its
key operating entities, including ASF. The MTN program is rated at the same level as the issuer.
ASF is the largest passenger car financing company in Indonesia (Baa3
positive) by assets. The company operates in the new and used car
markets, with new and used cars accounting for 85% of its portfolio at
the end of 2016. Its position in the new car market is driven by its
strong relationship with AI — and therefore Astra car dealers — as well
as its more than 30-year presence in the market. AI is the dominant
vehicle distributor in Indonesia, accounting for 55% of total new car
sales in Indonesia in 2016.
ASF’s asset quality saw some deterioration over the last two years, with an average credit costs of 2.7% (as % of gross loans) compared to 1.8% over 2010-14. This was largely driven by a weak operating environment.
At the same time, we note that ASF’s asset quality has held up better than peers. Moody’s expects that ASF’s asset quality will stabilize over the next 12-18 months, driven by a gradual improvement in the operating environment.
In addition, ASF has significant profitability and capital buffers to
withstand any deterioration in asset quality, with credit
costs/pre-provision income for 2016 being 47% while equity to assets
ratio was 18.3% at end March 2017.
While profitability has come down marginally on account of an increase in credit costs, it remains a key credit strength for the company, with
return on average assets for 2016 being at 3.0%. ASF’s robust
profitability is driven by a combination of a high net interest margin
and low operating costs; the latter of which is because of ASF’s
strategic position within the AI group. A substantial proportion of ASF’s
business originates from Astra-owned dealerships; thereby lowering
These strengths are balanced by the company’s relatively weak liquidity
profile, which stems from the nature of its business. As a finance
company, ASF does not have a retail funding franchise and relies on
wholesale sources for its funding needs. The company funds itself through bank borrowings as well as by issuing bonds.
WHAT COULD CHANGE THE RATING — UP
A substantial improvement in the level of liquidity on its balance sheet
could put upward pressure on ASF’s BCA.
WHAT COULD CHANGE THE RATING — DOWN
A meaningful increase in the leverage level and/or a sharp increase in
NPL formation rates could put downward pressure on ASF’s BCA. And, a
weakening of AI’s credit profile, such that its ability to support ASF is
adversely impacted, will lead to downward pressure on ASF’s rating.
Headquartered in Jakarta, Astra Sedaya Finance (P.T.) is the largest
passenger car financing company in Indonesia by assets, with assets
totaling IDR32.4 trillion (approximately USD2.4 billion) at end-March