Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Primary Credit Analyst: Xavier Jean, Singapore (65) 6239-6346; xavier.jean@standardandpoors.com Secondary Contacts: Andrew M Wong, Singapore (65) 6239-6306; andrew.wong@standardandpoors.com Rajiv Vishwanathan, CFA, Singapore (65) 6239-6302; rajiv.vishwanathan@standardandpoors.com Cheul Soo Cho, CFA, Hong Kong (852) 2533 3559; cheulsoo.cho@standardandpoors.com Agost Benard, Singapore (65) 6239-6347; agost.benard@standardandpoors.com
Table Of Contents
Major Economic Policies Are Likely To Continue The Mining Sector Remains Highly Susceptible The Credit Implications Of Consensus On Infrastructure Spending And Subsidy Rationalization Will Vary By Sector "Value-Added" Economic Policies Could Raise Costs For Agribusiness Companies Higher Costs And Lower Margins Are Likely For The Retail And Textile Sectors And State-Owned Companies If Labor Costs Keep Growing Lasting Restrictions Of Credit Availability Or Down Payment Rules Should Not Materially Affect The Rated Real Estate Or Consumer Durables Sectors Restrictions On Foreign Ownerships In Banking Will Likely Persist, Slow Consolidation
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 1
1293807 | 301447691
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 2
1293807 | 301447691
Rated Indonesian Entities Will Remain Resilient To Persisting Policy Risks Under The Forthcoming Administration
Indonesia's corporate and banking sectors have witnessed a flurry of new laws and regulations in the decade of President Susilo Bambang Yudhoyono's administration. Standard & Poor's Ratings Services believes that regulatory and policy risks will persist under the new administration as well. A new government will take over in Indonesia following the April 2014 parliamentary and the July 2014 presidential elections. We expect most of the Indonesian companies that we rate to withstand the lingering policy risk during the next 24 months. Our ratings on about half of the 27 Indonesian corporations we rate fall in the 'B' category or lower. The ratings and outlooks already reflect the higher degree of sensitivity these entities have to changing operating conditions because of smaller scale, narrower diversity, or lower profitability. In contrast, the companies that we rate in the 'BB' category or higher generally have stronger market positions, higher profitability, or lower leverage. This gives them greater ability to absorb heightened policy risk or more onerous regulations. All the four domestic banks that we rate are in the 'BB' rating category, and fall into this group: PT Bank Mandiri (Persero); PT Bank Negara Indonesia (Persero) Tbk.; PT Bank Danamon Indonesia Tbk.; and PT Bank Rakyat Indonesia (Persero) Tbk. Overview Policy and regulatory risks will remain high in Indonesia, regardless of the new administration, in our view. Our expectation of a broad continuity in the key economic policies of value-addition and infrastructure spending will likely influence the financial performance of companies in the mining, agribusiness, and infrastructure sectors. We believe that the credit profiles of rated Indonesian companies and banks will be able to withstand these risks. We do not expect any significant rating impact of the change in administration, given that our ratings already factor in the risks.
Further legislation in the mining and agribusiness sectors is set to materialize under the new administration, in our opinion. This is given the government's policy push toward "value-added" products. We also expect policy decisions on infrastructure and subsidies to influence the financial performance of the power generation and energy-intensive sectors. Microeconomic policies, including those regarding labor costs, will define the financial performance of labor-intensive sectors such as textiles and retail. On the whole, we believe these policies will be more onerous because they could raise operating costs or require substantial capital spending, particularly for small, less diversified, and less financially solid companies (see table 1).
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 3
1293807 | 301447691
Rated Indonesian Entities Will Remain Resilient To Persisting Policy Risks Under The Forthcoming Administration
Table 1
Major Regulations Passed Or Announcements Made During The Past Two Administrations
Economic policies Value-added domestic processing Major regulations or announcements Established mining law and domestic processing requirements for unprocessed minerals in 2009; Set export tariffs on unprocessed cocoa beans based on the reference price in 2010; Banned imports of selected horticultural and agricultural products in 2010 and 2013; Enacted the 2014 trade law; Banned the export of certain unprocessed mineral ores in 2014. Reduced the fuel subsidy in 2005 (average of more than 100% increase in fuel prices); Further reduced the fuel subsidy in 2013 (average of more than 40% increase in fuel prices); Established recurring increases in electricity tariffs (up 15% in 2013). Introduced a public service obligation margin in 2008; Established the Infrastructure Guarantee Agency in 2009; Established the Master Plan for Acceleration and Expansion of Indonesia Economic Development in 2011; Established the land acquisition law in 2011. Set requirements for foreign mining company ownership of mineral deposits and divestitures in the 2009 mining law; Established ownership rules in the banking sector (foreign ownership limited to 40%). Tightened mortgage down payment regulations on the purchase of automobiles and motorcycles in 2012; Required additional deposits for second-home buyers; Introduced restrictions on the disbursement of mortgages for real estate developers in 2013. Enacted policies on minimum wages.
Subsidies
Infrastructure
Ownership Financing
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 4
1293807 | 301447691
Rated Indonesian Entities Will Remain Resilient To Persisting Policy Risks Under The Forthcoming Administration
The likelihood that the ban on unprocessed mineral exports will last has increased
We see little prospects for exports of unprocessed mineral ore to resume for at least the next three to six months, given that the parliamentary and presidential elections will take place in April and July 2014, respectively. After that, the likelihood of a lasting ban will grow, in our view, because we believe major political constituents in Indonesia agree with the main objective of the ban, which is to increase the value of Indonesia's products. Parliament has consistently resisted the government's efforts to soften the effects of the ban over the past six months. The new administration is also likely to take some time to decide on the ban's implementation, including if it should provide short-term relief and to whom. The new administration could provide ad hoc exemptions to the ban, in our opinion, for example to companies with firmer plans to build processing infrastructure domestically. But we believe these would probably be accompanied by stringent conditions, such as a legally binding commitment and guarantee deposits. For domestic producers, these projects are likely to be debt-funded, in our opinion, because weak product pricing has strained miners' profitability for the past two years. Taking on debt could negate any improvement in cash flows from an exemption to the ban. In addition, margins of large-scale smelting projects tend to be significantly lower than those of upstream mining activities over an industry cycle, compressing the overall returns on capital invested.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 5
1293807 | 301447691
Rated Indonesian Entities Will Remain Resilient To Persisting Policy Risks Under The Forthcoming Administration Refinancing of bullet debt could be made more difficult because of the uncertainty of license extensions, or extensions after substantial changes are made in their terms and conditions. We believe this is especially relevant when the maturity of the notes falls within five years of the end of the contract (see table 3). We foresee a high likelihood of increased royalties for contract of work (COW) holders such as PT Freeport Indonesia, PT Newmont Nusa Tenggara, and PT Vale Indonesia Tbk. upon completion of these negotiations. This is because their royalty rates are well below 5%, and the assets would still be highly profitable even at higher royalty rates. We think coal companies face less risk of a hike in royalties because they already pay sizable royalties (about 13.5% of sales minus relevant deductions for certain costs), one of the highest rates globally.
Table 3
Coal Companies With Bonds Or Major Bank Loans Maturing And Contract Expiration Dates
Company PT Bumi Resources Tbk. PT Indika Energy Tbk. PT Adaro Energy Tbk. PT Berau Coal Energy Tbk. PT Bayan Resources Tbk. CCOW/CCA expiration 2019 (Arutmin asset); 2021 (KPC asset) 2023 (Kideco asset) 2022 (Adaro Indonesia asset) 2025 2025 to 2038 for major producing assets Note amounts and maturity dates US$300 million in November 2016; US$700 million in October 2017 US$300 million in May 2018; US$500 million in January 2023 US$800 million in October 2019 US$450 million in July 2015; US$500 million in March 2017 US$750 million club loan*
Source: Company filings. *Amortizes quarterly to April 2017. CCOW--Coal contract of work. CCA--Coal cooperation. agreement.
The royalty system for holders of IUP mining licenses will likely be clarified
The current administration has for the past year been floating the idea of increasing royalties for IUP coal mining license holders to about 13.5%, the same as those for coal contract of work (CCOW) holders, from the current 3% to 7%. A hike of this magnitude would have substantially negative effects on most IUP holders (none of which we rate). This is because they generally have smaller scale, lower operating efficiency, higher cash costs, and produce lower-quality coal with a lower selling price than CCOW holders. Such a royalty increase would make a large majority of IUP holders unprofitable, in our view, in the currently subdued coal environment and given that IUP holders generally hold lower-quality coal assets. We also believe illegal mining could increase and negate some of the intended effects of the royalty, including industry rationalization.
Table 4
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 6
1293807 | 301447691
Rated Indonesian Entities Will Remain Resilient To Persisting Policy Risks Under The Forthcoming Administration
Table 4
The Credit Implications Of Consensus On Infrastructure Spending And Subsidy Rationalization Will Vary By Sector
Infrastructure is another common economic theme in Indonesia as most parties see renewed spending as a catalyst for more rapid economic growth. As a result, we believe any new administration will maintain the strong momentum on infrastructure spending. We expect a further, albeit possibly gradual, rationalization of fuel and electricity subsidies to significantly help finance infrastructure spending. That will likely enable large state-owned companies to increasingly fund their investments internally. The past two administrations rationalized fuel subsidies in 2005 and 2013 and introduced better stability and predictability of revenues in the power sector by implementing the public service obligation margin. Credit implications of sustained focus on infrastructure and prospective rationalization of subsidies will be differentiated, in our opinion (see table 5).
Table 5
Credit Impact--Power, Refining, Building Material And Construction, And Energy Segments
Credit impact for the power generation sector: generally positive --The sector should benefit from higher prices and a more timely ability to pass through volatile fuel costs to end customers. --We raised the stand-alone credit profile on electricity producer PT Perusahaan Listrik Negara (Persero) (PLN) to 'bb-' from 'b+' on April 4, 2014, because we forecast higher cash flows from increased tariffs and greater generation capacity. This is despite still-heavy spending on the second tranche of its fast-track program. --We also expect PLN's working capital management to improve as the company becomes less reliant on the timing of subsidy payments from the government. --We expect gas-based power producers to raise prices as a result of price hikes from upstream gas producers. Credit impact for the refining sector: generally positive --Profitability and cash flow at PT Pertamina (Persero), the only domestic refiner, should benefit from a gradual normalization of the selling price of refined products. --Reduced reliance on timely receipts of government subsidies should enhance Pertamina's liquidity and the quality of its cash flow. --Nevertheless, that will be insufficient to stabilize cash flow adequacy ratios because of increased capital spending. Credit impact for the building material and construction sectors: moderately positive --These sectors should experience sustained demand and volume growth for the next three to five years. --We believe a renewed commitment by any incoming administration to increase infrastructure spending will boost cement sales for infrastructure projects from a paltry 21% in 2013, according to the Indonesia Cement Association. --Increased infrastructure spending should, in turn, help absorb substantial volume capacity growth coming into the cement market over the next three years. Credit impact for the energy-sensitive sectors: moderately negative --Electricity can account for 10% to 20% of operating costs for energy-intensive industries.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 7
1293807 | 301447691
Rated Indonesian Entities Will Remain Resilient To Persisting Policy Risks Under The Forthcoming Administration
Table 5
Credit Impact--Power, Refining, Building Material And Construction, And Energy Segments (cont.)
--Higher energy or fuel costs will weigh upon the margins of energy- and fuel-intensive industries without integrated power facilities, such as cement, pulp and paper, steel and aluminum, and metal smelting.
Higher Costs And Lower Margins Are Likely For The Retail And Textile Sectors And State-Owned Companies If Labor Costs Keep Growing
We expect Indonesia's minimum wage to continue rising by at least 10% annually on average for the next three years, regardless of the new administration, in line with the pace of the previous five years. Consensus for enacting further increases is widespread. In addition, regional governments have the power to establish minimum wages, so salary increases larger than that have been common across Indonesia.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 8
1293807 | 301447691
Rated Indonesian Entities Will Remain Resilient To Persisting Policy Risks Under The Forthcoming Administration
We expect the immediate credit effect of such increases to be marginally negative for companies in labor-intensive, competitive, and low-margin sectors, which have a limited ability to pass through higher costs beyond inflation to customers. Those companies include food retailers and textile manufacturers, for which we see little margin improvement for at least the next 12 months. For example, labor expenses accounted for only about 6% to 8% of operating costs at PT Matahari Putra Prima Tbk. (MPPA), PT Hero Supermarket Tbk., and PT Sumber Alfaria Trijaya Tbk. But we estimate that each 5% increase in wages above inflation could shave off 5% to 10% from their EBITDA margins because of these companies' thin profitability. Persisting labor cost inflation will also have varying effects on the profitability and margins of state-owned entities. PT Krakatau Steel (Persero) Tbk., PT Garuda Indonesia (Persero) Tbk., ANTAM, and to a lesser extent miners PT TIMAH (Persero) Tbk. and PT Bukit Asam (Persero) Tbk., will likely feel the pinch because of their fairly sizable workforces and pension obligations and thin profitability. On the other hand, labor costs are much lower for the large state-owned companies PLN, Pertamina, and PT Perusahaan Gas Negara (Persero) Tbk. (PGN). Highway operator PT Jasa Marga (Persero) Tbk.'s high profitability provides some buffer against potential further hikes in labor costs.
Table 7
Lasting Restrictions Of Credit Availability Or Down Payment Rules Should Not Materially Affect The Rated Real Estate Or Consumer Durables Sectors
We do not expect further material tightening of real estate regulations in the next 12 months. We believe the forthcoming administration and the central bank will first assess how the measures implemented in 2013 have affected credit growth and property prices before they take further action. Market sentiment also seems less upbeat than at this time last year, which reduces the need for an imminent round of additional measures. That said, we believe the new administration will not hesitate to take firmer measures if credit growth remains robust and property prices continue to grow steadily. Such actions could include further tightening of loan-to-value regulations; increasing down payments, mortgage controls, and restrictions on real estate purchases; or enacting higher stamp duties for real estate developers. The prospects of similar rules for durable consumer products, including cars and motorcycles, could trigger a slowdown in production growth in the manufacturing sector, but we believe this would be temporary. Volume growth dropped for a few months in 2012 when Bank Indonesia raised the minimum down payments on automobiles and motorcycles purchased on credit, but growth subsequently resumed.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 9
1293807 | 301447691
Rated Indonesian Entities Will Remain Resilient To Persisting Policy Risks Under The Forthcoming Administration
Table 8
Credit Impact--Banks
Credit impact for rated banks: neutral --There is no immediate rating effect on the four banks we rate: PT Bank Mandiri (Persero), PT Bank Negara Indonesia (Persero) Tbk., PT Bank Danamon Indonesia Tbk., and PT Bank Rakyat Indonesia (Persero) Tbk. --Our 'BB' category ratings and stable outlooks reflect our expectations that Indonesia's banking industry and country risk will remain high for the next 12 to 18 months.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 10
1293807 | 301447691
Rated Indonesian Entities Will Remain Resilient To Persisting Policy Risks Under The Forthcoming Administration
Along with the lingering effects from the "tapering" by the U.S. Federal Reserve, our base-case scenario includes a moderate increase in credit costs of Indonesian banks to 1.2% of loans in 2014. We also expect gross nonperforming loans to increase to about 2.5% in 2014, from about 2% in 2013. Nevertheless, we are of the view that Indonesia's banks will be able to withstand the potential pressure without risking negative rating implications. Indonesian banks have sufficient earnings buffers to offset a potential rise in credit costs, in our opinion, and we believe our ratings on these banks--all in the 'BB' category--largely reflect the risks.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 11
1293807 | 301447691
Rated Indonesian Entities Will Remain Resilient To Persisting Policy Risks Under The Forthcoming Administration
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 12
1293807 | 301447691
Copyright 2014 Standard & Poor's Financial Services LLC, a part of McGraw Hill Financial. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
WWW.STANDARDANDPOORS.COM/RATINGSDIRECT
APRIL 9, 2014 13
1293807 | 301447691