(The following statement was released by the rating agency)
Feb 19 - Fitch Ratings has assigned Indonesia-based PT Federal International Finance (FIF) and its unsecured senior debt programme 2012 of up to IDR10trn a National Long-Term rating of 'AAA(idn)' and a National Short-Term rating of 'F1+(idn)'. The Outlook is Stable.
The agency has also assigned a National Long-Term Rating of 'AAA(idn)' and a National Short-Term rating of 'F1+(idn)' to FIF's proposed senior bond tranche II 2013, to be issued under the programme, of up to IDR2.5trn with a maturity of up to three years. The proceeds from the proposed issue will be used to support the company's business growth. The company has up to two years to issue bonds under the senior unsecured debt programme.
Rating Action Rationale
The ratings reflect Fitch's expectation that FIF will receive support from its parent, PT Astra International Tbk (AI), in time of needs. This is based on FIF's significant contribution to AI's core motorcycle business, which is underlined in the parent's almost 100% ownership of FIF. As an integral part of AI's motorcycle business chain, FIF has an important role to provide direct financing services for the purchase of Honda motorcycles produced by Astra Honda Motor (AHM), a 50-50 joint venture between AI and Honda Motor Company Ltd ('A'/Stable).
The bonds are rated at the same level as FIF's National 'AAA(idn)' Long-Term rating to reflect Fitch's view that they represent direct, unconditional, unsecured and unsubordinated obligations of the company.
Rating Drivers and Sensitivities
Any decline in AI's ownership or support and FIF contribution to AHM would exert downward pressure on its ratings. However, Fitch sees this prospect as remote in the foreseeable future, given FIF's strategic importance to AI's and AHM's motorcycle business. Net managed receivables at FIF increased to IDR24trn at end-Q312 from IDR15trn at-end 2008 and contributed for about 47% of AHM's motorcycle credit sales (in units) at end-September 2012.
Fitch expects that FIF will continue to tap funding from capital markets and bank loans to support its motorcycle business growth. This is because its debt/equity ratio (DER) was low at 3.6x at end-September 2012 (2011: 3.7x), which is still far below the regulatory threshold of 10x. FIF will receive capital support, in time of need, from AI once the internal DER threshold is breached.
As a captive finance company that focuses on higher-risk motorcycle financing, FIF's profitability is relatively higher than that of peers that engage in car financing. Return on asset (ROA) and return on equity (ROE) stood at 6% and 31% at end-September 2012, respectively.
FIF's asset quality remains manageable with non-performing loans (NPLs) at 1% at-end September 2012 (2011: 0.8%). Write-offs (including recovery) and losses on repossessed assets remained stable at about 4% of average net manage receivables at end-Q312 and 2011. In Fitch view, asset quality could deteriorate in the event of an economic downturn or fuel price hikes.
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