20240708_PPAP_Laporan Hasil Pemeringkatan_31680994_lamp5.pdf

7/5/24, 2:29 PM Fitch Downgrades Perusahaan Pengelola Aset to 'AA-(idn)', Outlook Stable
The Ministry of State-Owned Enterprises (MSOE) maintains tight control over PPA by
appointing its board members, and consolidating the company into a strategic cluster
under Danareksa-PPA. The government owns one series A share in PPA that gives it
special rights, such as managing appointments to the board and approval of the entity's
major issues. PPA operates under MSOE's oversight, regularly reporting its
performance. MSOE sets financial targets and approves PPA's investment plan for SOEs,
ensuring effective governance and management through asystem of checks and
balances.

Precedents of Support 'Strong'

We expect continued government financial support for PPA due to its mandate to
restructure SOEs and manage non-performing loans (NPL), which reguire ongoing
government capital injections. The government has increased PPA's eguity, supporting
its restructuring mandate and enabling cost-effective funding. PPA's financial stability
partly relies on government aid, including capital injections and contribution-in-kind. In
addition, a government-granted power of attorney strengthens PPA's role in SOE
restructuring initiatives.

Incentives to Support

Preservation of Government Policy Role 'N/A'

Despite PPA's role in government policy as the sole entity managing and restructuring
distressed SOEs and handling NPLs, the proportion of NPLs under PPA's management is
small relative to the overall NPLs in Indonesia. In addition, the SOEs that PPA manages
are already in distress and their survival or termination will not have a material impact
on key public service provision or any key economic activity.

Contagion Risk 'Strong'

PPA is a high-profile entity for the government, serving as the sole SOE investment
holding within Danareksa-PPA. A default by PPA could be seen as asystemic failure due
to its crucial role in SOE restructuring, which would undermine investor confidence and
signal deeper financial issues in the GRE sector. A default by PPA is likely to prompt a
reassessment of risk perceptions regarding GREs in Indonesia, causing credit spreads to
widen.

Standalone Credit Profile

We introduce a national scale Standalone Credit Profile (SCP) at 'a-#(idn)', under Fitch's
Public Policy Revenue-Supported Entities Rating Criteria, based on 'Low Midrange' risk
profile and 'a' financial profile.

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Risk Profile: 'Low midrange'

Fitch assesses PPA's risk profile at 'Low midrange'! reflecting the combination of

assessments:

Revenue Risk: 'Weaker'

Following the integration of PPA and Danareksa, PPA retains the special situation fund
(SSF) business and minority shareholdings in investees, which significantly contribute to
its investment income. Despite a medium-term deleveraging strategy, which will reduce
financial assets and slow revenue growth, PPA's role in SOE restructuring and NPL
management remains unchanged. The government directs SOE restructuring,
effectively eliminating competition from the private sector while demand for NPL
management and SSF is generally market-driven and likely to fluctuate with economic
conditions.

Expenditure Risk: 'Midrange'

Financing and employee expenses made up 89X of PPA's operating expenditure in 2023,
with NPL costs constituting 5096. Employee expenses are expected to rise with inflation,
while financing costs may vary based on asset recovery. Stable NPL creation in the
banking sector and sufficient capital adeguacy reduce incentives for active NPL
management. Interest rate increases could drive costs, but risks can be mitigated
through pricing adjustments, particularly for externally funded projects, whereas
government-funded projects may offer less flexibility for adjustments.

Liabilities and Liguidity Risk: 'Midrange'

In2023, PPA's total debt (excluding lease liabilities) fell by 2.24 to IDR5.9 trillion. By
May 2024, debt further declined to IDR5.5 trillion (down 6.24 from 2023). PPA
maintains market access through various debt instruments, with bank loans constituting
304 of total debt, and bonds and sukuk at 5396. NPL management is typically funded by
sukuk with long-term tenors, resulting in a weighted average debt life of 6.2 years as of
May 2024.

Financial Profile 'a'

The financial profile is assessed at 'a' mainly reflecting the EBITDA leverage ratio.
EBITDA rose by 94 to IDR286 billion in 2023, which combined with decreased adjusted
debt, implying a net adjusted debt to EBITDA ratio of 17x, slightly down from 17.2x a
year earlier. We expected this to gradually decrease to 6.7x by 2028, reflecting a

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cautious investment plan that envisions total assets to decrease by CAGR of 1.8 over
2023-2028.

Derivation Summary

PPA's ratings are based on the four factors assessed under our Government-Related
Entities Rating Criteria, giving a weighted score of 25 out of 60. This is combined with
the 'a#(idn)' SCP assessed under Fitch's Public Policy Revenue-Supported Entities
Rating Criteria to arrive at the IDR.

We deem that the government has responsibility to support PPA due to the company's
policy-driven operation, afactor that contributes to a rating in line with national peers.
However, PPA is rated lower than PT Pelayaran Nasional Indonesia (Persero)
(AAAfidn)/aa-lidn)) due to PPA's higher leverage and lower interest coverage ratio.

National Ratings

The national ratings are derived from the 'a-#(idn)' SCP with one-notch uplift reflecting
our strong expectations on government support.

Debt Ratings

The ratings on long-term senior unsecured notes are egualised with the entity's
National Long-Term Rating.

Issuer Profile

PPA, the Indonesian government's only public-policy institution in asset management,
manages the assets of distressed SOEs and NPLs. PPA was established to continue the
work of the Indonesian Bank Restructuring Agency, which was created in the aftermath
of the Asian financial crisis in 1998.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating
Action/Downgrade

A downgrade of the Indonesian sovereign rating, or deterioration in the government's

responsibility or incentive to provide support may trigger negative rating action.

Any downgrade of PPA's National Long-Term Rating would result in a similar action on
its national long-term senior unsecured issue ratings.

Factors that Could, Individually or Collectively, Lead to Positive Rating
Action/Upgrade

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An upgrade of the Indonesian sovereign rating: strengthening of the government's

responsibility or incentive to provide support: or an improvement in PPA's standalone

credit profile may trigger positive rating action.

Any upgrade of PPA's National Long-Term Rating would result in a similar action on its

national long-term senior unsecured issue ratings.

References for Substantially Material Source Cited as Key Driver Rating

The principal sources of information used in the analysis are described in the Applicable

Criteria.
RATING ACTIONS
ENTITY /DEBT $ RATING £ PRIOR $
PT Perusahaan NatILT — AA-lidn) Rating Outlook Stabil AAfidn) Rating
Pengelola Aset 2 Tian) Rating Bulook Stab'e Outlook
Stable
Downgrade
senior unsecured AAflidn)

NatILT — AA-lidn) Downgrade

VIEW ADDITIONAL RATING DETAILS

FITCH RATINGS ANALYSTS

Ethan Lee

Director

Primary Rating Analyst

International

465 6796 2726

ethan.lee@fitchratings.com

Fitch Ratings Singapore Pte Ltd.

1 Wallich Street #19-01 Guoco Tower Singapore 078881

Guninta Surplusya
Associate Director
Primary Rating Analyst
National

#62 2140000759

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guninta.surplusya@fitchratings.com
PT Fitch Ratings Indonesia
DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof.Dr. Satrio Kav 3-5 Jakarta 12940

Guninta Surplusya

Associate Director

Secondary Rating Analyst
International

#62 2140000759
guninta.surplusya@fitchratings.com

Guilhem Costes

Senior Director

Committee Chairperson

434 91076 1986
guilhem.costes@fitchratings.com

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Leslie Tan

Singapore

465 6796 7234
leslie.tan@thefitchgroup.com

Jack Li

Beijing

486 105957 0964
jack.li@thefitchgroup.com

Additional information is available on www.fitchratings.com

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The rated entity (and/or its agents) or, in the case of structured finance, one or more of
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information, beyond the issuer's available public disclosure.

APPLICABLE CRITERIA

National Scale Rating Criteria (pub. 23 Dec 2020)
Government-Related Entities Rating Criteria (pub. 13 Jan 2024)

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Public Policy Revenue-Supported Entities Rating Criteria (pub. 13 Jan 2024) (including
rating assumption sensitivity)
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Endorsement Policy

ENDORSEMENT STATUS

PT Perusahaan Pengelola Aset EU Endorsed, UK Endorsed
PT Perusahaan Pengelola Aset EU Endorsed, UK Endorsed
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