Fitch Rates Bank Sulut's Senior Bond and Subordinated Bond

Wed Jun 25, 2014 11:39pm EDT

Related Topics

(The following statement was released by the rating agency) JAKARTA/TAIPEI/SINGAPORE, June 25 (Fitch) Fitch Ratings has assigned ratings to PT Bank Sulut's (Bank Sulut; A(idn)/Stable) proposed senior bond and subordinated debt as follows: - Senior bond with maturity of five years assigned a National Long-Term Rating of 'A(idn)'; and - Subordinated debt with maturity of seven years assigned a National Long-Term Rating of 'BBB-(idn)' The senior bond will be up to IDR750bn in size while the subordinated debt will be IDR250bn in size. Bank Sulut intends to use the proceeds to support its business growth. 'A' National Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment to a greater degree than is the case for financial commitments denoted by a higher rated category. 'BBB' National Ratings denote a moderate default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions are more likely to affect the capacity for timely repayment than is the case for financial commitments in a higher rated category. KEY RATING DRIVERS The proposed senior bonds are rated at the same level as Bank Sulut's National Long-Term Rating as they constitute direct, unsubordinated and senior unsecured obligations of the company and rank equally with all other unsecured and unsubordinated obligations. The proposed subordinated debt is rated three notches below Bank Sulut's anchor rating, which is based on its stand-alone credit profile and does not factor in possible government support. The notching comprises one notch for loss severity (reflecting the equity conversion and write-down features) and two notches for non-performance risk (reflecting their subordinated status and coupon and/or principal deferral risk). The notes will represent direct, subordinated and unsecured obligations of the bank and rank equally with all its other unsecured and subordinated obligations. Bank Sulut's ratings reflect Fitch's view that the regional government has the propensity to provide extraordinary support to the bank, if needed, given its majority of ownership in the bank. The ratings also take into account potential, but limited, support from the central government given Bank Sulut's important role in supporting development in the regional economies in Sulawesi Utara and also the bank's role as a treasurer for the Sulawesi Utara and Gorontalo provincial governments, and as the main lender to both provinces' civil servants. RATING SENSITIVITIES Any changes in Bank Sulut's National Long-Term Rating would result in changes to the issue ratings. Downward rating pressure may arise from a weakening of the central government's ability and/or propensity to provide extraordinary financial support to Bank Sulut. However, Fitch believes this to be a remote prospect in the near to medium term. Deterioration in the bank's standalone financial profiles is unlikely to impact its National Ratings, given the regional government's majority ownership in Bank Sulut and potential support to the bank. Upside potential for the bank's National Ratings may arise if the bank can successfully close the gap with its larger Indonesian peers in terms of the size of operations and assets, while maintaining a sound asset quality record, high core capitalisation and healthy profitability with a predominantly low-cost funding base. An upgrade of the Indonesian sovereign rating may also potentially impact the bank's ratings. Contacts: Primary Analyst Iwan Wisaksana Director +62 21 2988 6807 PT Fitch Ratings Indonesia Financial Institution DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7601 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "National Scale Ratings Criteria", dated 30 October 2013, and "Assessing and Rating Bank Subordinated and Hybrid Securities" dated 31 January 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

FILED UNDER: