Fitch Ratings Indonesia has affirmed the National Long-Term Rating of PT JACCS Mitra Pinasthika Mustika Finance Indonesia (JACCS MPMF) at 'AA(idn)'.

Its National Short-Term Rating and senior bond ratings have also been affirmed at 'F1+(idn)' and 'AA(idn)', respectively. The Outlook is Stable.

'AA' National Long-Term Ratings denote expectations of a very low level of default risk relative to other issuers or obligations in the same country or monetary union. The default risk inherent differs only slightly from that of the country's highest rated issuers or obligations.

'F1' National Short-Term Ratings indicate the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. Under the agency's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country or monetary union. Where the liquidity profile is particularly strong, a '+' is added to the assigned rating.

Key Rating Drivers

Shareholder Support Drives Ratings: JACCS MPMF's ratings are driven by Fitch's expectation of extraordinary support from majority shareholder JACCS Co. Ltd. (JACCS), a Japanese financing company, which owns a 60% stake in the Indonesian finance company. JACCS is 21.9%-owned by Mitsubishi UFJ Financial Group, Inc. (A-/Stable/a-). We believe JACCS has the ability to support JACCS MPMF as the subsidiary only made up around 2% of the Japanese shareholder's consolidated assets as of June 2023.

Largest Overseas Subsidiary: Fitch believes JACCS has the propensity to provide support to its subsidiary, underpinned by JACCS MPMF's profile as JACCS's largest overseas subsidiary, which supports the shareholder's plans of establishing an overseas base in south-east Asia. JACCS's operational support is demonstrated by the secondment of key management personnel to the Indonesian subsidiary, as well as the provision of ordinary funding support, including a sizeable standby shareholder loan facility of JPY40 billion to cover any liquidity shortfalls.

However, we believe the relatively modest profit contribution made by JACCS MPMF to the shareholder and significant 40% minority shareholding by local automotive distribution company PT Mitra Pinasthika Mustika Tbk would constrain JACCS's support propensity. JACCS's portfolio is mixed, with large contribution from credit card and personal loan businesses, while the Indonesian subsidiary mainly operates in the auto financing sector.

Reputational Considerations Motivate Support: We believe the shared branding between JACCS MPMF and its Japanese shareholder reinforces the likelihood of shareholder support due to the reputational risk to the parent should the subsidiary default. JACCS MPMF makes significant use of funding from Japanese lenders with links to the shareholder, which adds to reputational risks.

Modest Standalone Profile: JACCS MPMF's rating is not directly driven by its standalone profile, which reflects its modest franchise in the Indonesian finance and leasing sector and its below-industry asset quality and profitability. The non-performing financing ratio increased to 3.7% in 1H23 (2022: 2.6%) and higher provisioning expenses placed pressure on profitability, illustrating the potential volatility in the asset quality and earnings profile.

Nonetheless, capitalisation has remained stable with debt/tangible equity at 3.9x (2022: 3.8x). The funding and liquidity profile also benefits from ordinary support from JACCS, including the provision of the large shareholder loan facility.

RATING SENSITIVITIES

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

A weakening in JACCS's credit profile could lead to negative rating action on JACCS MPMF.

Perceived weaker shareholder propensity to extend support, possibly due to a significant decline in ownership or sustained underperformance by JACCS MPMF relative to the shareholder's objectives, may result in negative rating action. One such scenario may be sustained losses or asset contraction that diminish JACCS MPMF's contribution to its major shareholder.

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

A strengthening in JACCS's credit profile would be positive for the subsidiary's ratings.

Enhanced synergy between JACCS and JACCS MPMF could also lead to positive rating action on the subsidiary. This could include JACCS MPMF making a significantly greater contribution to its major shareholder's business and financial objectives, or increased product co-operation and operational integration between the two, assuming that JACCS's ability to support its subsidiary remains intact at the time.

An increase in JACCS's shareholding to above 75% could also strengthen our view of the shareholder's propensity to support JACCS MPMF. However, any positive rating action would still depend on the subsidiary making a greater financial contribution to the JACCS group.

DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS

JACCS MPMF's senior bonds are rated at the same level as its National Long-Term Rating, as the bonds constitute the company's direct and senior obligations and rank equally with all its other senior obligations.

DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES

Any change in JACCS MPMF's National Long-Term Rating would lead to a corresponding change in the debt ratings.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

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

Public Ratings with Credit Linkage to other ratings

JACCS MPMF's ratings are based on Fitch's expectation of extraordinary support from its stronger shareholder, JACCS, in times of need.

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