IFR Asia – November 25, 2017

strengthened considerably

over the past few years, and

economic growth remains on a

gradual upswing,” said Mok.

Some fund managers,

though, are cautious, given

that they can already access the

bond market onshore.

“Since this is the first

offshore rupiah issue, we will

wait to understand the market,

how liquid the bond will be

and how the pricing develops,”

said Manu George, senior

investment director for Asian

fixed income at Schroders.

FUNDING INFRA

Jasa Marga’s proposed bonds

will be sold to offshore

investors, similar to China’s

Dim Sum renminbi bonds and

India’s Masala rupee bonds.

Indonesia’s onshore

market, however, is relatively

open compared to India,

where foreign investors

face constraints and quota

restrictions. Foreign investors

held around 40% of outstanding

Indonesian government bonds

as of September, according to

Nomura.

“The fact that it will

primarily be foreign investors

participating creates a bit

of a liability as it will make

them sensitive to global risk-

off events,” said Kenneth

Akintewe, senior investment

manager for Asian fixed

income at Aberdeen Standard

Investments. “However, with

almost 40% of the domestic

bond market owned by

foreigners, this is something of

a risk for the Indonesian bond

market anyway.”

In October, foreign investors

sold about US$1.75bn of

Indonesian bonds, according to

central bank data, paring their

holdings for the first time since

November 2016.

The first test of the Komodo

format comes as Indonesia is

broadening the investor base

for its infrastructure sector in

a bid to fund approximately

Rp5,500trn of capital spending

by 2022 to build roads, ports

and bridges under its five-year

plan.

Fitch has estimated that

only around 30% of the total

can be sourced from the state

budget, with the remainder to

come from bank loans, public-

private partnerships and debt

instruments.

Construction services

company WIJAYA KARYA and state

electricity company PERUSAHAAN

LISTRIK NEGARA are also rumoured

to be considering offshore

rupiah bonds, according to

market sources.

The name for offshore rupiah

bonds comes from the Komodo

dragon, a large lizard native

to Indonesia, and President

Joko Widodo is said to have

suggested it, beating an earlier

proposal to call them nasi

goreng bonds (after fried rice in

the local language).

Jasa Marga invited banks

to pitch for the landmark

transaction in September,

shortly after raising Rp2trn

(US$148m) from its first

infrastructure-related

securitisation. That five-year

asset-backed deal used income

from the Jagorawi toll road

between Jakarta and cities in

Western Java to bring the yield

down to 8.4%.

The proceeds from the

Komodo bonds will be used

to fund Jasa Marga’s capital

expenditure. Moody’s estimates

its annual capex requirement at

more than Rp17trn for at least

the next three years as it aims

to double its toll road portfolio

to 1260km by 2019, which will

put pressure on its financial

metrics.

Jasa Marga’s toll roads

account for nearly two-thirds

of operational thoroughfares

in Indonesia. Both Moody’s

and Fitch see extraordinary

support from the government,

which owns a 70% stake in the

company.

Besides opening up the

international market,

Indonesian officials are looking

to deepen the domestic

investor base for long-term

infrastructure finance.

The Financial Services

Authority (or OJK, using the

Indonesian initials) has allowed

pension funds, insurers

and non-banking financial

institutions to invest in asset-

backed securities, so-called

limited participation mutual

funds and other infrastructure-

related instruments from

state-owned companies and

their subsidiaries, effective

from August 29. „

International Financing Review Asia November 25 2017 7

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ON HOLD

State-owned issuers had put

their borrowings on hold

because of the bearish market,

but are now revisiting their

plans.

“The RBI could have

cancelled OMOs as an

afterthought to rising yields

and volatility,” said Sandeep

Bagla, associate director at

Trust Capital. “This has spurred

activity on the corporate

bond issuance side, since the

volatility has subsided.”

NATIONAL HIGHWAYS AUTHORITY OF

INDIA, POWER FINANCE CORP, NATIONAL

BANK FOR AGRICULTURE AND RURAL

DEVELOPMENT and HOUSING AND

URBAN DEVELOPMENT CORP have

rushed to sell rupee bonds,

taking advantage of the recent

rally and positive sentiment

following Moody’s sovereign

upgrade.

NHAI has placed 15-year

notes worth Rs50bn (US$770)

with the Employees Provident

Fund Organization at 7.64%,

according to DCM bankers.

Some foreign institutional

investors have also been adding

to their positions after Moody’s

upgrade and the cancellation of

RBI OMO.

“Three months back, we

had reduced our position. In

the past week, we have been

adding back,” said Neeraj

Seth, head of Asian credit at

BlackRock. “Given where the

yields are in nominal and real

rates terms, it provides fairly

attractive carry opportunities.”

However, BlackRock expects

the central bank to be more

balanced in terms of how

it manages liquidity going

forward because India still has

surplus liquidity in the system,

compared to the past. “If you

go back a number of years ago,

India, typically, used to run a

deficit in domestic liquidity,”

said Seth.

The yield on the 10-year

government security is

expected to hover around 6.85%

to 7.05%, according to Bagla of

Trust Capital. „

“Overall, we believe that interest will be quite

high given that Indonesia’s external and fiscal

positions have strengthened considerably over

the past few years, and economic growth remains

on a gradual upswing.”

„ Correction In the story ”Japanese lenders warm to infra funds” published in our November 18 issue, the typical LTV ratio for

project finance deals was misstated. The correct ratio is 80%.

1019_04 News.indd 7 24/11/2017 21:54: