Fitch Revises Angkasa Pura I Rating to 'AA+(idn)'; Outlook Stable

(Fitch Ratings - Jakarta/Hong Kong - 08 Apr 2020)--Fitch Ratings Indonesia has revised state-owned airport operator PT Angkasa Pura I (Persero)'s (AP I) National Long-Term Rating to 'AA+(idn)', from 'AAA(idn), following a change in applicable criteria. The Outlook is Stable.

'AA(idn)' National 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.

RATING RATIONALE

Government-Related Entity Assessment

The rating revision reflects a change to our assessment of linkages to the Government-Related Entities (GRE) Rating Criteria, when considering support for a GRE when assigning National Ratings, rather than the Parent and Subsidiary Rating Linkage Criteria. We assess AP I's linkages with the Indonesian government under our GRE Criteria with an overall score of 25. The criteria consider the strength of linkages between AP I and the government as well as the government's incentive to provide support to the company.

Strong State Linkages

Fitch sees AP I's status, ownership and control by the sovereign as 'Strong'. The state fully owns the company and appoints its commissioners and board. It also controls its investment plans and capex decisions. We also assess the support record and expectations of state support for AP I as 'Strong', even though there is no record of the government providing tangible support, as API has a sound financial profile. However, we expect the company to receive government support, if needed, due to its important role in the country's economic development.

Moderate to Strong Implications of Default

Fitch sees the socio-political implication of a default by AP I as 'Moderate'. A default would damage the government's reputation, but we do not believe it would cause a severe disruption to Indonesia's air traffic activity, as airport infrastructure would remain intact and could be operated by other entities. Our assessment of the financial implications of a default is 'Strong', as the company is regarded as one of Indonesia's key state-owned entities and a default would hamper investor confidence in the sovereign and other state-owned entities.

Standalone Credit Profile

The coronavirus pandemic and government containment measures worldwide have created an uncertain global environment for air travel in the near term. Fitch's ratings are forward-looking, and we will monitor pandemic-related developments in the sector for severity and duration, and incorporate revised base- and rating-case qualitative and quantitative inputs based on our expectations for performance and assessment of key risks.

The virus outbreak could result in weaker domestic and international passenger traffic in Indonesia. The pandemic mobilisation restriction has inevitably hurt Indonesian airports' passenger traffic in March 2020. International departure passenger at Denpasar airport, AP I's largest airport, declined by 46% compared with the same period last year. Meanwhile, domestic departure passenger decreased by 31% during the same period last year. We expect the impact on traffic to increase in severity in 2Q20 with the global spread of the coronavirus. However, Denpasar airport dominates only around 25% of total API's passenger movement, whereas the other airports under API's portfolio have domestically driven passenger traffic, which we believe will have a faster recovery than tourism-driven Denpasar airport.

Adequate Financial Profile

AP I's debt comprises mainly amortising- bank loans. It has some domestic bullet bonds, but no near-term refinancing needs. Operating expenses could decline in light of lower passenger traffic and its capex budget is mainly expansionary, which allows for timing flexibility in executing its plans. AP I's leverage will average 6.9x over the five-year forecast period of 2020-2024 under Fitch's rating case. We see AP I's Standalone Credit Profile (SCP) at 'aa(idn)'. AP I's National Long-Term Rating is one notch below the rating of its parent, the Indonesian sovereign (BBB/Stable), in line with Fitch's GRE Rating Criteria, which takes into consideration the strength of the linkages between AP I and the government, as well as the government's incentive to provide support to AP I. (ends)