Fitch Affirms Sarana Multigriya Finansial at 'AA+(idn)'
SMF's ratings are linked to the Indonesian sovereign (BBB-/Stable), reflecting its status as a wholly state-owned corporation with tight control and oversight, as well as strategic importance in developing Indonesia's secondary mortgage market. Fitch believes there is a high probability of extraordinary state support for SMF, if needed.
'AA+' National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherently differs only slightly from that of the country's highest-rated issuers or obligations.
'F1+' Short-Term National Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. On Fitch's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country. Where the liquidity profile is particularly strong, a "+" is added to the assigned rating.
KEY RATING DRIVERS
Catalyst for Mortgage Market: SMF was founded to promote and develop Indonesia's secondary mortgage market and enhance the capacity and sustainability of affordable housing financing for the community. SMF has received IDR4trn in capital injections from the Ministry of Finance (MOF) to date. The integration attribute has been assessed as Midrange.
Strategic Policy-Arm: The government established SMF to help Indonesian families own an affordable home by developing the secondary mortgage market through the issuance of residential mortgage-backed securities (RMBS). SMF also helps increase home ownership among low-income earners by granting long-term and fixed-interest-rate loans to banks, part of which are subsided by the government. The strategic policy attribute has been assessed as Strong.
State-Owned: SMF is wholly owned by the government of Indonesia. However, the entity can be made bankrupt and has no special legal regime. The legal status attribute has been assessed as Midrange.
Tight State-Control: SMF reports directly to the MOF and its board of commissioners is appointed by the ministry. The MOF approves annual budgets, long-term plans and the board's composition at the general shareholder meeting. SMF is audited annually by an independent public accounting firm and is subject to audit by the state auditor. The control attribute has been assessed as Strong.
Financing Mortgage Lenders: SMF is focused on increasing its financing commitment, primarily to commercial banks and other financial institutions, with total loans rising to IDR7.8trn in 2015, from IDR6.4trn in 2014. SMF's main revenue source is loan interest-income, which rose by around 18% in 2015 to IDR824bn. The company projects net income to rise to IDR300bn in 2016, up 21% from 2015, due to the increase in loans.
Strict Lending Criteria: Fitch believes SMF's loan-quality will remain sound, as the company's mortgage portfolio is screened using prudent criteria. There were no non-performing loans at end-2015.
Increasing Leverage: SMF issued senior debt amounting to IDR1.6trn in 2015 and IDR1.57trn to end-June 2016. SMF has limited its debt/equity ratio at 4x to manage leverage and uses a mix of bonds and medium-term notes to finance operations.
Growing Involvement in Securitisation: SMF provided credit enhancement to eight RMBS issues and held IDR751bn of RMBS at end-2015. SMF successfully issued Indonesia's first RMBS with participation letter in November 2015, which totalled IDR200bn. SMF has been actively involved in all of PT Bank Tabungan Negara (Persero) Tbk's (AA(ind)/Stable) RMBS issues.
Downward rating pressure could arise from any negative changes to SMF's governance. This could occur if the state's ownership is diluted or the Ministry of Finance's influence on its board of commissioners is lowered.
An upgrade is not probable unless there is a more explicit declaration of support by way of a state guarantee.