Fitch Ratings-Hong Kong-January 31: Fitch Ratings has assigned Indonesia's proposed US dollar-denominated sovereign global certificates (sukuk), which may include one green tranche, an expected rating of 'BBB(EXP)'. The expected rating is in line with Indonesia's Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'BBB'.
The assignment of the final rating is contingent on the receipt of final documents materially conforming to information already reviewed.
The sukuk will be issued through Perusahaan Penerbit SBSN Indonesia III (PPSI-III), which is also the trustee. PPSI-III is a legal entity in Indonesia set up solely for the purpose of issuing sharia-compliant securities of the Indonesian government in foreign currencies in the international markets.
The issuer is contemplating multiple tranches for the proposed sukuk transaction where one tranche or more may be in the form of a green sukuk. The proceeds from the green sukuk tranche are likely to be used to finance or refinance green projects.
KEY RATING DRIVERS
The certificates' rating is driven solely by Indonesia's 'BBB' IDR. This reflects Fitch's view that a default of these senior unsecured obligations would reflect a default of Indonesia in accordance with Fitch's rating definitions.
We have not considered any underlying assets or collateral provided when assigning a rating to the PPSI-III sukuk, as we believe that the issuer's ability to satisfy payments due on the certificates will ultimately depend on the Indonesian government satisfying its unsecured payment obligations to the issuer under the transaction documents described in the prospectus and other supplementary documents.
In addition to the Indonesian government's undertaking to ensure repayment of the PPSI-III sukuk, in Fitch's view it would also be required to ensure full and timely repayment of PPSI-III's obligations due to the Indonesian government's various roles and obligations under the sukuk structure and documentation, especially - but not limited to - the following features in the ijara and wakala series:
- In the ijara series, on or prior to each periodic distribution date, the state (as lessee) will pay PPSI-III rental due under the lease agreement for the ijara assets, which is intended to be sufficient to fund the periodic distribution amounts payable by PPSI-III. Furthermore, in the wakala series, the lessee will pay to PPSI-III an amount reflecting the rental due for any project assets following their completion and delivery.
- On the scheduled dissolution or following the occurrence of a dissolution event, PPSI-III will have the right to require the state to purchase all of its rights, title, benefits and entitlements in, to and under the trust assets.
- The state will have to purchase the assets at a price equal to the outstanding face amount of the sukuk plus any accrued and unpaid periodic distribution amounts and any accrued but unpaid supplementary rental.
- In addition, the government will be required to pay any shortfall in insurance proceeds directly to the transaction account by no later than the close of business in London on the 31st day after the occurrence of the total loss event, unless the lease assets are replaced.
- The payment obligations of the Indonesian government (acting in any capacity) under the transaction are direct, unconditional, unsecured and general obligations, which rank pari passu with Indonesia's unsecured and unsubordinated marketable external debt.
The PPSI-III sukuk includes a negative pledge provision that is binding on the government of Indonesia, as well as financial reporting obligations, covenants and default acceleration terms.
Certain aspects of the transaction will be governed by English law, while others will be governed by Indonesian law. Fitch does not express an opinion on whether the relevant transaction documents are enforceable under any applicable law. However, Fitch's rating for the certificates reflects its belief that the government of Indonesia will stand behind its obligations.
When assigning ratings to sukuk certificates, Fitch does not express an opinion on their compliance with sharia principles.
RATING SENSITIVITIES
The rating is sensitive to any changes in Indonesia's Long-Term Foreign-Currency IDR. Fitch affirmed Indonesia's Long-Term Foreign-Currency IDR at 'BBB' with a Stable Outlook on 2 September 2018.
Contact:
Primary Analyst
Thomas Rookmaaker
Director
+852 2263 9891
Fitch (Hong Kong) Limited
19/F Man Yee Building
60-68 Des Voeux Road Central
Hong Kong
Secondary Analyst
Sagarika Chandra
Associate Director
+852 2263 9921
Committee Chairperson
Global Head Islamic Finance
Bashar Al-Natoor
Senior Director
+971 4 424 1242
Committee Chairperson
Jan Friederich
Senior Director
+852 2263 9910
Date of Relevant Rating Committee: 30 August 2018
Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@thefitchgroup.com.
Additional information is available on
Applicable Criteria
Country Ceilings Criteria (pub. 19 Jul 2018)
Sovereign Rating Criteria (pub. 19 Jul 2018)
Sukuk Rating Criteria (pub. 25 Jul 2018)
Additional Disclosures
Solicitation Status
Endorsement Policy
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