Fitch Affirms Penjaminan Infrastruktur Indonesia at 'BBB-'
The company is also known by its English name, Indonesia Infrastructure Guarantee Fund (IIGF).
IIGF's ratings are credit linked to those of the Republic of Indonesia (BBB-/Stable/F3), reflecting its status as a corporation wholly owned by the government of Indonesia, the strong oversight by the government and its strategic importance to development of infrastructure in the country. Fitch believes that there is a high probability of extraordinary government support for IIGF, if needed.
KEY RATING DRIVERS
Strategically Important: IIGF was created in December 2009 in response to the need for guarantees against the political risk inherent in infrastructure projects. The aim of the guarantees is to attract more private-sector participation in Public-Private Partnership (PPP) schemes in Indonesia. IIGF received IDR1trn in capital from the Ministry of Finance in December 2012, increasing its total paid-in capital to IDR4.5trn (about USD500m).
Tight State Control: IIGF reports directly to the finance ministry, which is its sole shareholder. IIGF is overseen by a three-member board of commissioners, who are appointed by the Ministry of Finance. Annual budgets, the board of directors' remuneration, long-term plans and the composition of the board are approved by the ministry at the company's general shareholder meeting. IIGF is audited by an independent public accounting firm every year and is subject to audit by the state auditor periodically.
Key Role in PPP Projects: IIGF serves as the government's sole representative in issuing guarantees and processing claims for PPP projects. IIGF covers the following sectors: power, water, roads and toll-roads, transportation, sewage and solid waste, irrigation, telecommunications, and oil and gas. It has further expanded into 11 other sectors, including social infrastructure. In providing guarantees for PPP projects, IIGF evaluates risks from both the contracting agency and the project perspectives.
Limited Activity So Far: IIGF's operations so far have been modest because of the lengthy time it takes to execute a PPP project. Currently, IIGF's main revenue is from interest earned on deposits and investments, although it has budgeted commission income of IDR226bn in 2015. Guarantee exposure is projected to increase to IDR14trn by 2017 from zero, and this will provide a steady stream of commission income.
An upgrade of Indonesia's sovereign ratings would trigger a rating upgrade, provided the linkages between IIGF and the government continue to be strong.
A downgrade of Indonesia's sovereign ratings or negative changes to IIGF's status following a dilution of its legal status or control by the sovereign could trigger a rating downgrade.