Fitch Places Pelindo III's USD Notes on Rating Watch Positive; Withdraws the IDR

(Fitch Ratings - Singapore - 06 Oct 2021)-- Fitch Ratings has placed the 'BBB-' rating on PT Pelabuhan Indonesia III (Persero)'s (Pelindo III) senior unsecured US dollar bonds on Rating Watch Positive (RWP).

Fitch has also withdrawn Pelindo III's Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'BBB-'.

RATING RATIONALE

Pelindo III has merged with PT Pelabuhan Indonesia II (Persero) and two other state-owned port operators, PT Pelabuhan Indonesia I (Persero) and PT Pelabuhan Indonesia IV (Persero). The surviving entity is Pelindo II and it has been renamed as PT Pelabuhan Indonesia (Persero) (Pelindo, BBB/Rating Watch Negative).

The assets and liabilities of the other three operators have been transferred to the surviving company, including outstanding senior unsecured dollar bonds. All four port operators are fully owned by the government, and the merger does not change their ownership, so there is no change of control event.

The RWP on Pelindo III's US dollar bonds reflects potential of an upgrade following Fitch's reassessment of Pelindo's consolidated business and financial profiles, and linkages with the Indonesian government (BBB/Stable).

Fitch is withdrawing the Long-Term IDR on Pelindo III as the company no longer exists following the merger. Accordingly, Fitch will no longer provide ratings or analytical coverage for Pelindo III.

KEY RATING DRIVERS

The ratings on the US dollar notes will be linked to the Long-Term IDR of the merged Pelindo. For more details on the key rating drivers and sensitivities for Pelindo, please see "Fitch Places Pelindo on Rating Watch Negative on Merger with Other Ports" at https://www.fitchratings.com/site/pr/10179390

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

- Fitch may remove the ratings on Pelindo III's senior unsecured notes from Rating Watch Positive and affirm the ratings at their current level if Fitch believes that the merged Pelindo's consolidated business and financial profiles and/or our assessment of Pelindo's linkages with the government have deteriorated to be in line with a 'BBB-' rating.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

- Fitch may upgrade the ratings on Pelindo III's senior unsecured notes if we assess that the merger has not led to deterioration in the merged Pelindo's consolidated business and financial profiles and/or our assessment of Pelindo's linkages with the government.

Best/Worst Case Rating Scenario

International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

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.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg. (ends)