July 7, 2017 / 9:40 AM / a month ago

Indonesian state firms securitize assets in bid for big inflows

Cars pass through a new toll road Salatiga-Bawen section in Semarang, Central Java province, Indonesia June 15, 2017 in this photo taken by Antara Foto. Antara Foto/Aditya Pradana Putra via REUTERS

JAKARTA (Reuters) - 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.

An official drives a motorcycle during an inspection at a new toll road Salatiga-Bawen section in Salatiga, Central Java province, Indonesia June 8, 2017 in this photo taken by Antara Foto. Antara Foto/Aloysius Jarot Nugroho via REUTERS

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.

Cars pass through a new toll road Salatiga-Bawen section in Semarang, Central Java province, Indonesia July 3, 2017 in this photo taken by Antara Foto. Antara Foto/Aditya Pradana Putra via REUTERS

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."  

Additional reporting by Thomas Escritt in Hamburg, John Chalmers and Fransiska Nangoy in Jakarta; Editing by Richard Borsuk

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