International Financing Review Asia November 25 2017 1Upfront
OPINION INTERNATIONAL FINANCING REVIEW ASIAEnter the dragon
I
NDONESIAûWILLûBEûHOPINGûTHATûITSûlRSTûGLOBALûOFFERINGû
of Komodo bonds proves as big an attraction as
its namesake. Investors hope it will be rather less
dangerous.
4HEûOFlCIALSûBEHINDû*ASAû-ARGASûOFFSHOREûRUPIAHû
BONDSûHAVEûNAMEDûTHEûFORMATûAFTERûTHEûWORLDSûLARGESTû
living species of lizard. Native to Indonesia, the komodo
dragon can grow up to three metres long and is a popular
ecotourism attraction in South-East Indonesia. It is also a
deadly predator with a toxic bite, capable of attacking large
prey, and even - rarely - humans.
)NDONESIASûBIGGESTûTOLLûROADûCOMPANYûHASûBEENûTASKEDû
with introducing the Komodo bond to the global capital
MARKETSû/NûPAPER ûITûISûAûPERFECTûlTû*ASAû-ARGAûHASûJUSTûTHEû
kind of long-term infrastructure assets that are attractiveTOûINTERNATIONALûlXED
INCOMEûINVESTORS ûANDûNEEDSûTOû
BROADENûITSûFUNDINGûSOURCESûTOûMEETûTHEûCOUNTRYSûAMBITIOUSû
infrastructure plans.
4HEûQUESTION ûTHEN ûISûWHYûITûHASNTûBEENûABLEûTOûATTRACTû
GLOBALûINVESTORSûBEFOREû)NDONESIASûDOMESTICûDEBTûMARKETû
ISûALREADYûOPENûTOûANYûINTERNATIONALûINVESTOR ûSUBJECTû
to regulatory approval, and free from quotas or other
restrictions. Around 40% of all government securities are
held by foreign investors.
That makes the Komodo bond a very different proposition
to the Dim Sum market, which caught on quickly after the
lRSTûCORPORATEûISSUEûINûûBECAUSEûGLOBALûINVESTORSûHADû
few other ways of gaining exposure to renminbi securities.
Now a door to the onshore market is open, the Dim Sum
format is losing its appeal.
)NDIASû-ASALAûBONDS ûTOO ûOFFERûAûRUPEEûINVESTMENTû
option free from the quotas and restrictions of the domestic
market.
Indonesia does not have those weapons to fall back on,
ANDûINVESTORSûKNOWûTHATûTHEûRUPIAHûCANûBEûAûlCKLEûBEASTû
ITSELFû7ITHûTHATûINûMIND û*ASAû-ARGAûCANûCLAIMûSUCCESSûIFûITûBUILDSûGLOBALûINTERESTûINû)NDONESIASûCREDITûSTORY ûBUTûITûMAYû
NEEDûTOûBEûMOREûFOCUSEDûONûDIVERSIlCATIONûTHANûPRICE
If Indonesia is to meet its infrastructure targets, it needs
TOûCONVINCEûAûNEWûGROUPûOFûINVESTORSûTOûENTERûTHEûDRAGONSû
den.Policy risks
C
HINASûCLAMPDOWNûONûONLINEûCONSUMERûlNANCEû
companies is a stark reminder of the risks that
investors take on when they buy into a Chinese IPO.
.EWLYûLISTEDû1UDIAN û00DAIûANDû*IANPUû4ECHNOLOGYûHAVEû
exciting stories to tell, and historical numbers to back up
their rapid growth. They also offered US investors a chance
TOûBETûONûAûNEWûAREAûTHATûCOMBINESûTHEûAPPEALûOFûlNANCIALû
services, technology and a growing middle class.
But all Chinese companies operate under a regulatory
environment that can change at any time. And in a young
SECTORûSUCHûASûONLINEûlNANCE ûHIGH
PROlLEû)0/SûONLYû
increase the chances that their business model will attract
regulatory scrutiny.
Rumours of a crackdown on the rampant growth of
microlending had been circling for some time before last
WEEKSûEDICTûAPPEAREDûTOûCONlRMûINVESTORSûWORSTûFEARSû
A crackdown on new licences was quickly followed by
mainland reports that regulators plan to review all existing
LICENCESûINûTHEûMICROCREDITûSECTORû1UDIAN û00$AIûANDû*IANPUû
all slumped last Wednesday ahead of the Thanksgiving
break.
The companies that survive the audit will likely end up
with a far greater share of this promising market, which
will help their stock price as a result. But it is a brave
investor who predicts the winners.
The wild swings in stock prices have so far been limited
to this small group of newly listed US stocks. The lessons,
however, are universal.
Following clampdowns on overseas acquisitions and
mysterious investigations into various company chairmen
UNDERû8Iû*INPINGSûPRESIDENCY ûITûISûCLEARûTHATûANYû#HINESEû
investment today comes with a high level of policy risk.
While the scrutiny on the rapidly growing micro-loan
sector is arguably less of a shock, the old adage about stock
market investments takes on new meaning when it comes
TOû#HINESEûREGULATIONûPASTûPERFORMANCEûISûNOûGUARANTEEûOFû
future success.*ASAû-ARGAûCANûCLAIMûSUCCESSû
if it builds global interest in
)NDONESIASûCREDITûSTORY