JAKARTA (TheInsiderStories) – The Indonesian Government is urging financial markets to support the acceleration of infrastructure development, to make up for insufficient state funds.
In August, Indonesia’s Financial Services Authority (FSA) has issued an effective statement for three capital market instruments in infrastructure financing. According to Chief Executive of Indonesia’s FSA, Hoesen, the instruments are two Asset-backed Securities Collective Investment Contracts and one Limited Investment Fund.
The three instruments have a value of Rp 12 trillion, which will be used to finance the construction of toll road, airport, and electricity infrastructure. Among other of the issuer are state-owned toll road operator PT Jasa Marga Tbk (IDX: JSMR) and PT Perusahaan Listrik Negara (PLN) have launched asset-backed securities to raise Rp2 trillion ($148 million) and Rp4 trillion, respectively.
So, is this the right time for investors to sink their money in infrastructure?
The infrastructure sector is reportedly considered a high-risk enterprise for most investors. In Indonesia, infrastructure project development is often constrained by various negative factors, such as land acquisition, permits and social issue related to local communities. Thus projects get stalled.
However, not all projects will be offered to investors. Jasa Marga for example, offers an 8.4 percent yearly return from Jagorawi Toll Road–-a main artery out of the capital city-–for future revenue as the underlying asset. With an interesting return, this saw 2.7 times or Rp5.1 trillion in oversubscription. Jasa Marga will use the proceeds to work up 990 kilometers of toll-road targeted by 2019.
In early September, unit of PLN, PT Indonesia Power, also offering an asset-backed securities with underlying the company’s receivable, for steam-fueled power plant Banten 1 or Suralaya. PLN is looking for Rp4 trillion to accelerate power plant development, in order to ensure electrification ratio of 99.7 percent across Indonesia by 2019.
Meanwhile, local port operator, PT Bandarudara Internasional Jawa Barat (BIJB) is looking for Rp900 billion to partially fund Kertajati Airport development in Cirebon, West Java. Unlike the two prior products that went fishing for institutional and retail investors, BIJB will issue a private equity fund with segmented investors that have big money.
The positive investor appetite for Jasa Marga projects, led by local arranger PT Mandiri Sekuritas, encourages other brokers to eye infrastructure as a main portfolio. PT Bahana Investment Management also expressed its intention to release private equity fund products due to high interest on the part of institution investors.
Bahana already launched a private equity fund of $35 million with Tanjung Priok Harbor as the underlying project. With 50 institutional investors committed to injecting capital, the fund will be used to acquire areas around the harbor.
“Next year, we will issue another toll-road private equity fund, with a value of Rp5 trillion. We have already begun a discussion,” said Soni Wibowo, Investment Manager of Bahana.
Currently, the government has identified two other companies, namely PT Waskita Toll Road – a subsidiary of PT Waskita Karya Tbk (IDX: WSKT) and PT PP Energi – a subsidiary of PT PP Tbk (IDX: PTPP) as the ones to raise funds, with nine toll-roads and a steam-fueled power plant as the underlying asset. They will issue a private equity fund around the third quarter of this year.
Therefore, pension funds or insurance could be invested in asset-backed securities and private equity funds that offer higher yields than bonds or deposits.
The agency will develop new capital market instruments, including a project-based limited participant mutual fund, full cross-currency swap hedging as well as export-based investments, Wimboh Santoso, OJK Chairman told reporters on Tuesday (9/5).
According to him, Indonesia has recently been successful in issuing asset-backed securities, as seen in the issuance by Jasa Marga. Asset-backed securities are also known for accounts receivable securitization.
Authorities are currently active in pursuing export-based investments to increase reserve revenue. When the government needs to repay foreign investments, they also will qualify for various export financing, including bank loans.
“We will create a lot of instruments to push capital market financing. Greater variety in financing instruments would give more options for corporations to get fresh cash. We keep exploring new instruments; we already have asset-backed securities, medium term notes, corporate bonds. More instruments will deepen the market,” he said.
The OJK will develop the hedging market, as most infrastructure projects in Indonesia generate revenue in rupiah but foreign investors demand payment in dollars, he said, adding that not many long-term hedging instruments are currently available in the domestic market. Cross currency swap hedging is also possible.
“Now people are trading hedging instruments with over-the-counter mechanisms, not in the regulated market. There will be a specialized bourse to sell hedging instruments,” Wimboh said.
Accelerating infrastructure projects is one of the main focuses of Indonesia’s government and project financing is one of the main hurdles. The World Bank estimates that Southeast Asia’s largest economy will have to spend $500 billion to meet its infrastructure needs over the next five years and public spending alone simply will not be enough.
Bambang Brodjonegoro, Minister of National Development Planning, opined it is time for investors to consider infrastructure as an alternative investment, as it offers unique benefits. He said private investor will be offered the projects with an internal rate return (IRR) above 13 percent.
He pointed out how PT Astratel Nusantara – a subsidiary of PT Astra International Tbk (IDX: ASII) that owns a 45 percent stake in the Cikampek-Palimanan (Cipali) toll-road, has indicated its infrastructure business will yield benefits for investors over the long term.
US$1 = Rp13,300
Writing by Rahmat Fiansyah and Yosi Winosa