Fitch Affirms Sarana Multigriya Finansial at 'AA (idn)'
SMF's senior unsecured bond issues have been affirmed at 'AA+(idn)' and medium term notes at 'F1+(idn)'
SMF's ratings are linked to the Indonesian sovereign (Issuer Default Rating: BBB-/Stable), reflecting its status as a corporation wholly owned by the state, tight control and oversight, and strategic importance in the development of the secondary mortgage market in Indonesia. 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 with the purpose of promoting and developing the secondary mortgage market, and to enhance the capacity and sustainability of affordable housing financing for the community. To date, SMF has received IDR3trn in capital injections, with a further IDR1trn expected by end-2015. The injections are from the Ministry of Finance, its 100% shareholder.
Strategic Policy Arm: The government of Indonesia believes that a home is a primary need and priority for each Indonesian family. The government established SMF to help Indonesian families own decent and affordable homes by developing the secondary mortgage market. SMF also helps to increase home ownership among low income earners by granting long-term and fixed interest rate loans to the banks, part of which are subsided by the government.
Tight State Control: SMF reports directly to the finance ministry and its board of commissioners is appointed by the ministry. Annual budgets, the board of directors' remuneration, long-term plans and the composition of the board are approved by the Ministry of Finance at the company's general shareholder meeting. SMF is audited by an independent public accounting firm annually and is subject to audit by the state auditor.
Financing Mortgage Lenders: SMF is focused on increasing its financing commitment to mortgage lenders, primarily commercial banks and other financial institutions, with total loans rising to IDR6.5trn in 2014 from IDR6.2trn in 2013. In the future, SMF plans to issue residential mortgage-backed securities to finance mortgage lenders. SMF's main source of revenue is interest income on loans, which increased by 29% in 2014 to IDR669bn. The company expects interest income on loans to rise to IDR1.4trn by 2017 due to the increase in loans to IDR17.6trn.
Increasing Leverage: The increase in SMF's debt has accompanied its business growth. SMF forecasts it will need to issue IDR2.5trn of debt in 2015. For leverage management, SMF has limited the debt-to-equity ratio to its current 4x. SMF uses a mixture of bonds and medium-term notes to finance its operations.
Downward rating pressure could arise from any negative changes to SMF's governance through the government's ownership being diluted or a reduction in the Ministry of Finance's influence on its board of commissioners.
An upgrade is unlikely unless there is a more explicit declaration of support by way of guarantee from the government