Fitch Affirms Penjaminan Infrastruktur Indonesia at 'BBB-'
IIGF's ratings are credit-linked to those of Indonesia (BBB-/Stable/F3), reflecting its status as a wholly owned state corporation with strong oversight and strategic importance in developing public-private partnership (PPP) projects. Fitch believes there is a very high probability of IIGF receiving extraordinary state support, if needed, and its ratings are equalised with the sovereign.
KEY RATING DRIVERS
Strategically Important: IIGF was created in 2009 to provide guarantees for the political risks inherent in infrastructure projects. Guarantees attract more private participation in Indonesia's PPP projects, addressing significant infrastructure investment needs that cannot be financed solely from the national budget.
Tight State Control: IIGF reports directly to the Ministry of Finance (MoF) and is overseen by a three-member board of commissioners, two of whom are appointed by the MoF. The MoF approves IIGF's annual budgets, long-term plans and board composition at the general shareholder meeting.
Key Role in PPP Projects: IIGF serves as the state's sole representative issuing guarantees. IIGF extended the eligible sectors that can be guaranteed to 19 from eight under Ministry Regulation in 2016. The MoF is in the process of amending the regulations so IIGF can also provide guarantees for the infrastructure development sector in addition to infrastructure projects.
Limited Activities to Date: Operations have been limited so far because the PPP projects in IIGF's pipeline are still underway, since large-scale infrastructure programmes typically take years to reach financial close. IIGF's current main revenue source is from interest earned on its liquid assets. IIGF expects to books its first fee revenues from total guarantees issued in 2016 of around IDR2.5trn.
Sound Liquidity: IIGF's main risks - given the nature of its activities - are the guarantees it issues. These are off-balance sheet, so the company's liquidity is entirely invested in either short-term securities or bank deposits. Liquidity is in support of issued guarantees and IIGF has an internal limit of total guarantees not exceeding 2x cash and investments and also limits exposures. IIGF says it can obtain a short-term facility from a bank if more liquidity is needed to meet called guarantees or it can approach the MoF for additional capital. IIGF's total paid-up capital from the MoF reached IDR6trn at end-2015 and is invested in liquid assets and securities held to maturity.
An upgrade of Indonesia's sovereign ratings would trigger a rating upgrade, provided the linkages between IIGF and the state remain strong.
A downgrade of Indonesia's sovereign ratings or a demotion in IIGF's status due to a dilution of its legal status or control by the sovereign could trigger a rating downgrade.