Singapore, June 17, 2020 -- Moody's Investors Service ("Moody's") has assigned Baa2 backed senior
unsecured ratings to the planned US dollar-denominated trust certificates
(sukuk) to be issued by the Government of Indonesia (Baa2 stable) through
Perusahaan Penerbit SBSN Indonesia III ("PPSI III") under
its existing $25 billion trust certificate issuance program.
The ratings apply to all the proposed tranche issuances, including
those with maturities in 2025, 2030 and 2050. According to
the terms and conditions available to Moody's, the trust certificates
will constitute direct, unconditional and unsubordinated obligations
of the Government of Indonesia (the issuer). In Moody's opinion,
the payment obligations represented by the securities to be issued by
PPSI III are ranked pari passu with all of the Government of Indonesia's
current and future senior unsecured external debt. The proceeds
of the notes are intended for general budgetary purposes, including
for financing requirements.
The rating mirrors the Government of Indonesia's long-term issuer
rating of Baa2 with a stable outlook. Moody's notes that its sukuk
ratings do not express an opinion on the structures' compliance with Shari'ah
law.
RATINGS RATIONALE
Indonesia's Baa2 rating is underpinned by a number of credit strengths
- including Indonesia's robust and stable growth rates and a low
government debt burden, preserved by consistent fiscal discipline
and emphasis on macroeconomic stability - as well as persistent
credit challenges. These comprise a very weak revenue base that
constrains debt affordability, the government's reliance on external
market funding that exposes its balance sheet and the economy to changes
in foreign investor sentiment, and an economic structure that remains
vulnerable to commodity cycles. Moody's expects that reforms aimed
at reducing a number of structural economic and fiscal constraints will
continue, albeit at a gradual pace, similar to the relatively
slow progress achieved in the last few years.
The stable outlook reflects balanced risks at Baa2, mainly related
to the pace and effectiveness of reforms. Significant delays or
reversals in reforms would risk undermining Indonesia's growth potential
and macroeconomic stability. Conversely, more effective reforms
than Moody's currently expects would improve competitiveness, raise
growth potential and strengthen Indonesia's external position.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental risks are a material credit consideration for Indonesia's
credit profile. Coastal flooding and rising sea levels are a particular
concern, with widespread implications, including for agricultural
production and food security. In 2019, the government announced
its plan to relocate the country's capital city to Kalimantan from Jakarta,
in part because the existing capital is particularly vulnerable to rising
sea levels and its associated effects. Separately, demand
for arable land and intensive commercial logging have led to soil erosion
and deforestation. In addition, given its geographical location,
Indonesia is subject to considerable seismic activity that are manifested
in natural disasters such as earthquakes, tsunamis and volcanos.
Social considerations are not material for Indonesia's credit profile.
Demographic trends—including population growth and a declining dependency
ratio—are supportive of economic growth. However, Indonesia's
educational outcomes are below global standards and act as a constraint
to competitiveness, prompting the government to formulate plans
to the quality of human capital. Moreover, wealth is concentrated
and Indonesia's rankings on wealth inequality indices are weak.
This contrast between supportive and negative factors is captured in Moody's
assessment of economic strength.
Governance considerations relevant to Indonesia's credit profile are captured
in Moody's assessment of the strength of the sovereign's institutions
and governance. Indicators such as the Worldwide Governance Indicators
show that Indonesia's rule of law is relatively weak by global standards,
although improving in recent years.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Over time, indications that fiscal policy measures can durably and
significantly raise government revenue would put upward pressure on the
rating. Higher revenue would enhance fiscal flexibility and provide
more direct financial means for the government to address large social
and physical infrastructure spending needs.
An upgrade would also result from indications that Indonesia's potential
is strengthening, towards rates commensurate with the country's
population growth and income levels, including through a deepening
of financial markets and improved competitiveness. Downward pressure
would arise if: 1) evidence indicates that the strengthening of
Indonesia's policy framework and institutions stalls or reverses;
2) there were a meaningful deterioration in the external position such
as from prolonged currency depreciation or capital outflows, which
would have ramifications for debt affordability.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Anushka Shah
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Marie Diron
MD-Sovereign/Sub Sovereign
Sovereign Risk Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
