JAKARTA (TheInsiderStories) – State-owned PT PP Tbk (IDX:PTPP) becomes the first company will issue perpetual bond in Indonesia. The construction firm has plan to issue up to Rp1.5 trillion (US$108 million) from selling such bond in August of this year.
Perpetual bond is a bond without maturity date and thus is may be treated as equity, instead of debt. Although it is still classified as fixed-income securities, the proceeds will go into equity, meaning that the issuer can afford to miss paying the coupon without it resulting in a credit default.
PTPP’s director Agus Purbianto said on Tuesday (17/04), the bond will carry an annual interest rate around 9.65 percent per year. After three years, if PTPP does not buyback the bond the interest will increase by 5 percent.
The bond issuance will be handled by PT Ciptadana Asset Management and PT Danareksa Capital. The first purchase of this instrument will be conducted by PT Ciptadana Asset Management through the issuance of Rp250 billion Limited fund. In addition, there is still a potential increase of Rp1.3 trillion through PT Danareksa Capital.
President Director of Ciptadana, Paula Rianty Komarudin, explained that the company intends to issue the limited fund worth Rp1 trillion with underlying PTPP’s asset.
The limited fund with entitled Ciptadana Infrastruktur Indonesia offers a yield rate of 8.25 percent per year. The securities are rewarded with an A-rating by PT Pefindo.
Currently, the limited fund of Ciptadana Infrastruktur Indonesia is still in the legal stages of the document. The launch of the product will be held on 14 May.
She said, PTPP’s limited fund has sold out to about 10 investors, most from insurance companies and about 30 percent of foreign institutional investors.
PTPP’s president director Agus Purbianto added, the instrument was chosen as it can be recorded as equity in financial books. A stronger equity means the company has a greater capability to fund its power plant in Meulaboh, Aceh that is estimated to be worth Rp8 trillion.
Fellow state-controlled builder PT Adhi Karya Tbk (IDX: ADHI) is also preparing the sale of perpetual bond this year via its subsidiary, PT Adhi Persada Gedung, to raise fresh funds for construction of light rail transit project in the greater Jakarta area.
Last year, Indonesia’s financial regulator has changed its rules governing investments by non-bank financial institutions, in a move aimed at getting those firms to support government infrastructure projects.
The Financial Services Authority has revised a regulation first implemented in January last year that required insurance companies, pension funds and other non-bank financial institutions to keep a minimum percentage of government bonds in their portfolio to help provide stability to the debt market.
In the revised version, the FSA has expanded the options for required investment products to include instruments issued by state-owned companies and their subsidiaries used to finance government infrastructure projects.
Indonesia needs $520 billion to meet its infrastructure needs in the next five years. Government has urged SOEs to find alternative financing through direct investment or capital market by issuing new instruments.
The Ministry of National Development Planning has initiated an infrastructure investment climate through the assessment of regulations and to accelerate the implementation creative financing instruments by creating non-budget investment financing scheme known as PINA, to domestic and foreign investors.
Analysts had said perpetual bond may be a solution say to help curb debt risks posed by overleveraged state firms, and may speed up infrastructure development in medium term.