SINGAPORE (Standard & Poor's) October 12, 2011: Standard
& Poor's Ratings Services today assigned its 'BB+' long-term foreign
currency issue rating to the proposed issue of benchmark-sized global
Sukuk trust certificates by Perusahaan Penerbit SBSN Indonesia II
(PPSI-II), a fully owned special purpose vehicle of the Republic of
Indonesia (BB+/Positive/B; axBBB+/axA-2). (source)
The rating on the
certificates reflects our view that, under the related lease and
repurchase agreement between the government and PPSI-II, the government
is obliged to make all payments to PPSI-II to ensure that the issuer has
sufficient funds to make full and timely periodic distribution and
principal payments to certificate holders.
We rate this issue on par with the sovereign's commercial
financial obligations. This is because, in our view, the sovereign's
contractual commitment gives the government a strong incentive to treat
its obligations to PPSI-II under this transaction pari passu with its
other obligations, including conventional debt. We consider that
governments may sometimes in stressful fiscal situations consider rent
or lease obligations as subordinate to bonds or bank loans.
However, in
this case, we expect a default by the government on its obligations
under this transaction would likely trigger a default on the
certificates. We believe that the government will consider the
performance of the certificates as being equally important as the
performance of its conventional debt.
The ratings on Indonesia
reflect continuing improvements in the government balance sheet and
external liquidity, against a backdrop of a resilient economic
performance and cautious fiscal management. Rating constraints include
Indonesia's low per capita income, structural and institutional
impediments to higher economic growth, and relatively high inflation. In
addition, the country remains vulnerable to external shocks partly
because the domestic capital markets are shallow; but this risk has
lessened.
The positive outlook on the sovereign ratings reflects the likelihood
of an upgrade if inflation is tamed while balance sheet improvements
continue, likely in combination with successful implementation of at
least parts of the government's fiscal, administrative, and structural
reform agenda.
We may raise the ratings if inflation pressure
diminishes, the external debt burden declines, the sovereign's balance
sheet improves, or reforms such as a subsidy rationalization suggest
that fiscal and external vulnerabilities are further reduced.
Conversely, a stalling of reforms or the absence of timely and adequate
policy responses to renewed fiscal or external pressures would result in
the rating stabilizing or weakening.
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