Indonesia's FIFAstra to Issues US$1.67M Bond
 PT Astra Sedaya Finance, a leasing company under PT Astra International Tbk (IDX: ASII) to releases local bonds worth of Rp2.5 trillion (US$173.66 million) to support their business activities - Photo: Privacy

JAKARTA (TheInsiderStories) – Moody’s Investors Service affirmed the Baa2 long-term local and foreign currency issuer ratings of leasing companies, PT Astra Sedaya Finance (ASF), Federal International Finance (FIF), and PT Adira Dinamika Multi Finance Tbk (IDX: ADMF). The agency has also affirmed the Baa2 long-term local and foreign currency deposit ratings of PT Bank Danamon Indonesia Tbk (IDX: BDMN).

At the same time, Moody’s has affirmed the baa3 Baseline Credit Assessment (BCA) and baa2 adjusted BCA of Danamon. The ba2 Standalone Assessments of ASF, FIF and ADMF remain unchanged. The outlooks, where applicable, remains stable.

It said, the rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The vehicle financing industry in Indonesia has been one of the sectors affected by the shock, given its exposures to the borrowers with susceptibility to weak economic activities and high reliance on confidence-sensitive borrowings.

Moody’s regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Today’ action takes into consideration the negative impact on ASF, FIF, ADMF and Danamon of the breadth and severity of the shock.

To curb the coronavirus outbreak, the government of Indonesia (Baa2 stable) has rolled out domestic travel and social restrictions, such as a ban on public gatherings of more than five people. These restrictions, coupled with the fall in global demand for commodities, have led to a sharp drop in domestic business activity.

While the government has simultaneously implemented economic measures – which include a stimulus package, reductions in policy rate and reserve requirements, as well as regulatory relaxations on debt restructuring rules, these measures will only help to soften, but not offset the economic disruptions.

The maintenance of the ba2 Standalone Assessments of ASF, FIF, and ADMF reflects Moody’s assessment that the three companies will be able to withstand the immediate stress caused by the coronavirus outbreak. The firms are the largest auto financiers in Indonesia with dominant distribution networks and strong franchises that are currently unmatched domestically.

While Moody’s expects the asset quality and profitability of the three companies to take a hit because of the coronavirus outbreak, their strong capitalization will provide ample buffers to absorb potential losses and in the longer term, help them resume normal business operations and restore their solvency when the crisis passes.

Furthermore, they will likely continue to have access to funding, underpinned by their well-established payment track records, as well as the strong credit standings and reputations of their respective parents. In the near term, Moody’s anticipates that the asset quality at the three finance companies will weaken considerably, given that their borrowers – particularly those who are from the low-to middle-income segments – will likely be affected by rising furloughs and layoffs caused by the coronavirus disruptions.

Loan restructuring and repayment moratoriums will provide temporary relief to the companies but could still lead to increases in credit losses when some of these borrowers eventually default. The higher credit losses, at the same time as lower revenues and potentially higher funding costs, will also exert downward pressure on the companies’ profitability.

The liquidity of ASF, FIF and ADMF will also come under pressure due to heightened market volatility and slower repayments, although their strong access to funding will likely mitigate these risks. Like other finance companies in Asia, the Indonesian vehicle financiers are vulnerable to financial market volatility because they cannot accept deposits and therefore rely solely on confidence-sensitive borrowings for funding.

They also tend to keep low cash balances and depend more on their borrowers’ repayments and securing new borrowings to meet liability obligations and disburse new financing.

Bank Danamon

The affirmation of Danamon’ baa3 BCA takes into account the bank’ strong capitalization, which will provide ample buffers to absorb credit losses as a result of the coronavirus outbreak. The bank will likely maintain its strong access to deposits and funding, underpinned by a well-established domestic franchise and indirect support from its majority shareholder, Japan’ MUFG Bank, Ltd. (MUFG, A1 stable, a3).

In the near term, Moody’s also expects Danamon’s asset quality to come under significant pressure, given that auto loans managed by subsidiary ADMF accounted for more than one third of the bank’s total loans as of March 31, 2020. The bank’ small medium enterprises segment will also be vulnerable to the economic shock, as the liquidity of small businesses are usually insufficient to withstand a sudden drop in revenue.

The lender profitability will also weaken as well, because of rising credit costs and falling loan growth. The affirmation of Danamon’ Baa2 long-term deposit ratings takes into account the bank’ baa2 adjusted BCA, which incorporates affiliate support from parent MUFG.

Danamon’ baa2 adjusted BCA is one notch higher than its baa3 BCA, based on Moody’s assessment that the bank will receive support from MUFG in times of need. Moody’s has also raised the level of support from MUFG to “Very High” from “High”, taking into consideration MUFG’s 94.1 percent ownership of Danamon, as well as MUFG’ long-term strategy to expand in faster-growing markets such as Indonesia.

While Moody’s also incorporates a “High” level of government support into Danamon’ ratings, they do not benefit from further uplift because the bank’s adjusted BCA is already at the same level as Indonesia’s sovereign rating.

The affirmation of ASF, FIF and ADMF’ Baa2 ratings reflects Moody’s assessment that the parents of these companies will provide a “Very High” level of support to them in times of need, given the strategic importance of these companies to their parents. Specifically, ASF and FIF are instrumental in driving sales at conglomeration firm, PT Astra International Tbk’ (IDX: ASII) motorcycle and car businesses respectively, besides being fully-owned by the conglomerate.

For ADMF, the company represents one of Danamon’ core businesses, apart from being nearly 100 percent owned by the bank. As a result, the Baa2 ratings of the three companies are three notches higher than their ba2 Standalone Assessments.

Astra Sedaya Finance headquartered in Jakarta, reported total assets of Rp36.1 trillion (US$2.41 billion) int he first quarter of 2020. its sister firm, Federal International Finance, also based in Jakarta, reported total assets of Rp37.6 trillion at the same period.

The other leasing fir, Adira have a total assets of Rp35.1 trillion at the end of 2019. While, its holding company, Danamon reported total assets of Rp185.1 trillion on March 31, 2020.

US$1: Rp15,000

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