RPT-Fitch Rates Indonesia's Proposed PPSI-III Sukuk 'BBB-(EXP)'
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Aug 21 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned Indonesia's proposed Perusahaan Penerbit SBSN Indonesia III (PPSI-III) global certificates (Sukuk) an expected 'BBB-(EXP)' rating.
The expected rating is in line with the Republic of Indonesia's Long-Term Foreign Currency Issuer Default Rating (LT FCIDR) of 'BBB-', which has a Stable Outlook. The final rating is conditional on receipt of information conforming to materials already received.
The ratings reflect Fitch's view that cashflows supporting payment on the proposed Sukuk will constitute direct, unconditional, unsecured and general obligations of the Republic of Indonesia, ranking equally with Indonesia's unsecured and unsubordinated marketable external debt.
Key Rating Drivers
Indonesia's ratings are underpinned by its strong economic growth, supported by high investment and savings rates, and low and declining public debt ratios. Pressures on the external finances, a credit weakness, have resulted in some strain on the credit profile, but these are not yet seen as inconsistent with a 'BBB-' rating. The ratings incorporate Fitch's expectation that policy will be managed in such a way as to prevent economic overheating.
Progress in tackling structural weaknesses, including low average incomes and deficiencies in infrastructure, combined with sustained economic growth, without a build-up of external imbalances or a severe inflation shock, would be positive for the ratings over the medium-term. Further reform of public finances, leading to enhanced budgetary flexibility, would also be positive for the ratings.
A sustained reduction in foreign and domestic investor confidence, leading to heavier capital outflows than seen to date and disruption of economic stability could lead to negative rating action. Deterioration in the quality of fiscal or monetary policy management, leading to signs of overheating such as a sustained pick-up in inflation and second-round effects from the recent fuel price hike, or widening external imbalances, would adversely affect the ratings. Instability in the banking system would also be negative for the ratings.
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