Webinar: The Impact of

Coronavirus on Indonesia
Credit

8 April 2020
Indonesia’s
Sovereign Rating

Thomas Rookmaaker
8 April 2020
Coronavirus Impact: Indonesia’s Sovereign Rating

Growth and Fiscal Outlook –Subject to Uncertainty, Different Scenarios

Sensitivity Analysis - Gross General Government Debt

(% of GDP) Baseline Growth Interest Rate Fiscal Exchange Rate

50

45

40

35

30

25

20
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Source: Fitch Debt Dynamics Model

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Coronavirus Impact: Indonesia’s Sovereign Rating

Rupiah Depreciation and Falling FX Reserves

Foreign Reserves
International Reserve IDR spot (RHS)
(USDbn) (USD/IDR)
140 16,000
Thousands

15,000
130
14,000
120
13,000

110 12,000

11,000
100
10,000
90
9,000

80 8,000

Jan 20
Jan 16

Jan 17

Jan 18

Jan 19
Oct 16

Oct 17

Oct 18

Oct 19
Apr 16

Jul 16

Apr 17

Jul 17

Apr 18

Jul 18

Apr 19

Jul 19
Source: CEIC and Bank Indonesia

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Coronavirus Impact
and Rating Actions on
Indonesian
Infrastructure &
Project Finance
Issuers
Sajal Kishore

8 April 2020
2020 Outlook: APAC Transportation
Negative Sector Outlook
• Demand-based assets, particularly those in the transportation space, are most
vulnerable
• The knock-on underlying economic and individual sector impacts all put into question
the pace of the recovery
What to Watch
• Further transportation demand reductions due to extended government-imposed
restrictions, affecting airports, toll roads and ports
• Weaker-than-expected recovery due to the depth of the decline and the underlying
economic damage from the crisis
• Economic and political constraints to implementing allowable rate or tariff increases
• Issuer ability to manage operating costs to stabilise earnings or cash available for debt
service
• Flexibility to defer capex and shareholder distributions for most; support from
shareholders could be forthcoming for some issuers
• Refinancing risk heightened for all issuers, although liquidity will remain adequate in
2020
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Global Rating Review: Coronavirus Impact

• Fitch has performed reviews of all infrastructure ratings globally

• Cash flow scenarios to simulate the potential effects of coronavirus
• Revenue/volume declines well in excess of what Fitch would expect under
typical recessionary conditions
• Two scenarios designed to incorporate the impact of the pandemic, with regional
adjustments:

• Revised Rating Case: Severe Downside in 2Q20; Stabilising in 3Q20 and

Partial recovery in 4Q20 . 2021 to be in line with 2019 levels
• Severe Downside Sensitivity: Severe Downside in 2Q20; Severe Downside
continues in 3Q20; stabilising in 4Q20 and partial recovery in 1Q2021. 2022
to be in line with 2019 levels
• More severe stress scenarios will be run in future to reflect worsening impact of
the pandemic

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Global Rating Review: Key Focus

• Focus on the potential magnitude and impact of the downturn and the ability to
recover, while maintaining critical levels of liquidity for the current rating level
• Continue to target a 'through-the-cycle' view:
• operating cash flow can service debt at the existing rating level
• ability to maintain existing levels of liquidity
• ability to recover to a financial profile consistent with the current rating level
by 2022
• Fitch recognizes that near-term metrics could breach indicative rating thresholds
in 2020 and 2021
• Focus will be less on any one metric and more on the ability to withstand this
crisis and revert within two-to-three years to a more stable credit profile that is
consistent with the current rating

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Indonesian Transportation
Toll Roads Seaports Airports

Affirmations Downgrade Affirmations Downgrade Affirmations Downgrade

Toll Roads Seaports Airports

Stable Negative Watch Negative Stable Negative Watch Negative Stable Negative Watch Negative

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Indonesian Power & Renewables

• No immediate rating actions on rated notes

• Take-or-pay obligations under the long-term power purchase agreements,
mitigates volume/price risks
• Economic slowdown will soften power demand but
• Cash flow available for debt service is independent of dispatch
• Supply of electricity is perceived to be an essential service, provides baseload
• No disruption to coal supplies expected
• Robust spares / inventory, with business continuity plans in place
• Future rating action to reflect changes in counterparties or sovereign/country
ceiling, where constrained

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Coronavirus Impact
on Indonesian
Corporates

Olly Prayudi
8 April 2020
Review Approach: Relative Rating Vulnerability
• Sector exposure: depending on the nature of the businesses, the level of
impact from the virus outbreak, and the markets (geography) in which issuers
operate.
• Rating headroom: how close they were to breaching our issuer-specific
negative rating sensitivities.
• ‘High’, ‘Moderate’ and ‘Low’ classification for each factor.
• Three broad categories:
A. Companies whose operations have already clearly been impacted by
COVID-19.
B. Companies that entered 2020 with ‘Low’ or ‘Moderate’ rating headroom,
combined with ‘High’ or ‘Moderate’ exposure sectors or sub-sectors.
C. All other companies whose rating headroom and sector exposure place
them at less-immediate risk.
• Continue to target a 'through-the-cycle' view for companies where we regard
liquidity as robust, focusing primarily on our projected financial expectations for
end-2021.

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Indonesian Corporates: Sector & Rating Headroom
Sector Exposure:
• Most commodity-related sectors have ‘High’ sector exposure due to weakening
prices: Coal, Oil and Gas
• Consumer-related sectors such as homebuilders and food, beverage, tobacco
have ‘Moderate’ sector exposure – underpinned by potential shift in spending
behaviour.
• Utilities and telecommunications have ‘Low’ sector exposure on the back of long-
term contracts and higher needs of data traffic, respectively.

Rating Headroom:
• ‘Low’ rating headroom for most crude-palm oil issuers on the back of depressed
price since 2019.
• Similarly, most of the issuers under the homebuilding segment have ‘Low’ rating
headroom due to weak property demand in 2019.
• Conservative balance sheet and strong parental linkage generally translate into
‘High’ rating headroom.

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Foreign Currency Exposure
USD/IDR Trend

IDR
17,500
17,000
16,500
16,000
15,500
15,000
14,500
14,000
13,500
13,000
02-Jan-2020 01-Feb-2020 02-Mar-2020 01-Apr-2020

Source: Bank Indonesia

• Indonesian Rupiah has depreciated by around 20% since January 2020.

• FX exposure through borrowings and/or raw material imports.
• In general, issuers borrow in their earnings currency – minimizing FX risk.
• Indonesian homebuilders have a large FX mismatch between their earnings and
balance sheet.
• Commodity-related sectors have ‘Low’ FX exposure as they have natural hedge
from their US dollar-linked earnings.

3
Financial
Institutions

Gary Hanniffy, CFA

8 April 2020
Coronavirus Impact: Financial Institutions

Operating Environment
• Lower economic activity and incomes pose a formidable challenge
• Social distancing measures could create further difficulty for collection teams
Asset Quality
• Business and consumer repayment capacity to suffer
• Credit restructuring to spike – will help reported ratios but not the underlying position
Profitability
• Credit costs to rise as asset quality weakens but new restructuring rules to help limit the increase
• Indonesian banks and fincos high NIMs provide a significant cushion
Funding & Liquidity
• Rupiah liquidity to remain relatively benign on slower growth and BI relief measures
• USD liquidity squeeze to hurt issuers with market refinancing needs but exposure is low
Capitalisation
• Indonesian banks high capitalisation ratios provide a solid capital buffer
• Finco leverage is generally not excessive with industry debt/equity at around 3x

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Coronavirus Impact: FI Ratings

Impact on Ratings
• Will ultimately depend on the severity and duration of the pandemic

Ratings Most Susceptible to Negative Action

• Banks and fincos with VR/standalone credit profile-driven ratings
• Banks and fincos whose VRs/standalone credit profiles are rated above Fitch’s operating environment
score

Fitch’s Rating Coverage

• Most ratings are based on expectations of support from higher-rated parents/sovereign
• Widespread near-term negative rating action unlikely
• But global nature of the crisis means that parent’s own credit profiles are likely to be under pressure

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VR Above the Operating Environment Score

BCA Rating Navigator – Snapshot:

Financial Profile
Operating Management & Support Rating Issuer Default
Peer Ratings Company Profile Risk Appetite Earnings & Capitalisation & Funding & Viability Rating
Environment Strategy Asset Quality Floor Rating
Profitability Leverage Liquidity
aaa aaa AAA AAA Stable
aa+ aa+ AA+ AA+ Stable
aa aa AA AA Stable
aa- aa- AA- AA- Stable
a+ a+ A+ A+ Stable
a a A A Stable
a- a- A- A- Stable
bbb+ bbb+ BBB+ BBB+ Stable
bbb bbb BBB BBB Stable
bbb- bbb- BBB- BBB- Stable
bb+ bb+ BB+ BB+ Stable
bb bb BB BB Stable
bb- bb- BB- BB- Stable
b+ b+ B+ B+ Stable
b b B B Stable
b- b- B- B- Stable
ccc+ ccc+ CCC+ CCC+ Stable
ccc ccc CCC CCC Stable
ccc- ccc- CCC- CCC- Stable
cc cc CC CC Stable
c c C C Stable
f f NF D or RD Stable

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Indonesia
Insurance Sector

Jessica Pratiwi
8 April 2020
 Indonesia Life and Non-Life Insurers
Weaker Premium and Earning Growth:
• Interruption of new business generation leading to slower new business growth
• Deterioration in global equity markets and the decline in interest rates will put pressure on life insurers' earnings, reserves
and capital
• A prolonged decline in new motor vehicle sales will hurt the motor insurance business, which is the dominant business line
• Fitch revises rating outlook of APAC life and non-life insurance to negative
• The ratings of non-life insurers will be less affected by the pandemic than those of life insurers

Breakdown of Life Premium by Distribution Channel Indonesia Non-life Premium Breakdown 2019

10% Property
19% Motor
8% 26%
2% Credit & Suretyship
38% Agen
4% Marine
Bancassurance 2% Aviation and Satelite
Others 6% Enginering
Energy
23% PA and Health
43% 18%
Others

Source: Indonesia Life Insurance Association (AAJI)

Source: Indonesia General Insurance Association (AAUI)

Source: Indonesia Life Insurance Association (AAJI)

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Indonesia Life and Non-Life Insurers
Life insurers with high exposure to risky assets, such as equities, would be most vulnerable to financial market
volatility.

Life Insurers Invested Asset

Cash Equivalent Bonds Stocks Mutual Funds Others

2019 7% 22% 30% 34% 7%

2018 8% 19% 30% 36% 7%

2017 9% 20% 30% 36% 4%

2016 12% 25% 32% 26% 5%

2015 9% 20% 30% 35% 5%

Source: OJK

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 Presenters Contact

New York London

fitchratings.com 33 Whitehall Street 30 North Colonnade
New York, NY 10004 Canary Wharf
London, E14 5GN

Sajal Kishore
Stephen Schwartz Thomas Rookmaaker
Senior Director, Head of
Senior Director, Head of Director, Asia-Pacific
Asia-Pacific Infrastructure
Asia-Pacific Sovereigns Sovereigns
& Project Finance Ratings
stephen.schwartz@fitchratings.com thomas.rookmaaker@fitchratings.com
sajal.kishore@fitchratings.com

Olly Prayudi
Gary Hanniffy Jessica Pratiwi
Director, South Asia
Director of Financial Senior Analyst of
Industrials of Corporate
Institutions Group Insurance Group
Group
gary.hanniffy@fitchratings.com jessica.pratiwi@fitchratings.com
olly.prayudi@fitchratings.com

FR 4x3 2019 v16