PFI Indonesian Project Bonds Roundtable 2018
Welcome to the transcript of the Project Finance International (PFI) Indonesian project bond roundtable event held in late April in Jakarta at the Ritz Carlton Pacific Place. The event was sponsored by SMBC, Moody’s, Credit Guarantee & Investment Facility (CGIF) and Allen & Overy Ginting & Reksodiputro. It was attended by an audience of about 100 people,
The event followed on from PFI’s successful Japanese Project Bond roundtable event last November in Tokyo but with an expanded format. The Indonesian discussion was split in two – between rupiah bonds and dollar bonds. In addition, the event was introduced by Adelina Halim from Tusk Advisory. The week before the event Tusk had presented the results of its independent study on the economic impact of Indonesia’s infrastructure delivery programme.
The Tusk report found that if the current US$100bn of projects under construction can be completed on time, Indonesia can achieve growth of 7.2% by 2023. But Halim pointed out there is still a gap between the long-term funding needed and the current short-term and medium-term local debt appetite.
Encouraging developments, such as the issuance of the first Komodo bonds, have occurred in the last year but tenors remain limited to five years. Komodo bonds are denominated in rupiah and are payable in US dollars. That said, over the last year two long-term US dollar bonds have been issued on Indonesian power projects – Paiton and Star Energy.
The Star Energy deal was transacted a week before the roundtable. The deal was successful but was impacted by wide emerging market turbulence. Hendra S Tan, president director of Star Energy Geothermal, told the roundtable: “The one lesson I learned is that market timing is everything; it has to be almost perfect.”
Clearly, the fixed income market is becoming receptive to Indonesian deals – whether in the local or international markets – but a lot more issuance is needed to establish the market and to fund the huge needs of Indonesia’s infrastructure market. More depth and liquidity are required from the local markets. The dollar market is subject to fluctuations outside issuers’ control, as with Star, but the interesting point is that Paiton offered an investment grade credit to investors and Star a sub-investment grade credit and both got away.
The first panel discussion focused on the local and Komodo bond rupiah sector while the second looked at the potential for the dollar bond sector. Clearly, there was some overlap between the two discussions.
The rupiah panel discussion provides an in-depth analysis of where the local bond market is right now and what needs to be done to improve its liquidity and depth. The variety of opinions clarified just where the important issues are right now.
The dollar panel was upbeat on the prospects for more issuance. Indonesia has just been upgraded from Baa3 to Baa2. The first two deals were ideal, given they are operating projects. Now we wait to see what comes next…