Indonesian state firms securitise assets to attract foreign pension funds

Photo: REUTERS/Garry Lotulung

Indonesian state firms aim to get big international pension funds to buy their securities backed by future income of infrastructure assets, in a bid to help President Joko Widodo win $10 billion in additional inflows.

The state budget is not enough for the government’s ambitious plan to expand infrastructure in Southeast Asia’s biggest economy. Costs of moving goods around the sprawling archipelago are among Asia’s highest.

Widodo told Reuters this week that he had instructed ministers to market the country aggressively to investors, capitalizing on Standard & Poor’s May 19 upgrade of its credit rating to investment grade.

Indonesia is hoping to attract the likes of Canada Pension Plan, Japan’s Government Pension Investment Fund (GPIF) and other institutional investors, Thomas Lembong, chairman of Indonesia’s investment coordinating board, told Reuters.

“We can’t just sit back and wait for people to come because competition to attract capital flows is ferocious,” Lembong said. “Everything from toll roads to power plants to airports to ports should be securitized to capital markets.”

Indonesian Finance Minister Sri Mulyani Indrawati told Reuters ahead of the G20 summit in Hamburg on Thursday that the government plans to securitize projects that are “already active and revenue-generating”.

That way, pension funds will not be involved in “the nitty-gritty of the new project or a project already being built so they can see the risk in a much better way,” she said.

Under a securitization model, a company typically issues a trust-like investment structure that is backed by future revenue from a project or an asset, with investors earning a certain rate of return.

POSITIVE INITIAL RESPONSE

Indonesia’s biggest toll road operator, PT Jasa Marga Tbk, has begun working to securitize about half of the 4 trillion rupiah ($298.4 million) in revenue expected over five years from a road linking Jakarta to cities in West Java province.

The securities – expected to offer annual returns of 8-9 percent over five years – have received a positive initial response from potential investors including pension funds, said Donny Arsal, Jasa Marga’s finance director.

State-controlled electricity firm Perusahaan Listrik Negara (PLN) is issuing securities backed by the projected five-year income of 10 trillion rupiah from a power plant operated by its unit.

PLN decided on this new investment structure as it had already raised funds from bonds, bank loans and other sources, finance director Sarwono Sudarto said.

“There is already a limit to the existing models of funding,” Sudarto said, adding that under asset securitization, there is no transfer of ownership of its physical asset.

There’s no guarantee the securitization plans will succeed.

Andre Varian, a portfolio manager at BNI Asset Management, said the securities issued by state firms are relatively new in Indonesia and their returns are not much higher than those offered by other fixed-income assets.

The lack of liquidity in the domestic market may also deter foreign investors, Varian said. “Foreign demand would be very limited since there is no liquidity.”

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Reuters

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.