BOC rewrites T2 book 09 GM Kangaroo 10 ESG loans take off in Japan 10
on Tuesday, hosted by DBS and
Mandiri.
Indonesia is already facing
sharply higher borrowing
costs in US dollars because
of rising US interest rates. As
well as a stronger US dollar,
Turkey’s financial turmoil and
Argentina’s request for an early
disbursement of IMF bailout
funds have led to heavy outflows
from emerging-market assets.
Against that backdrop,
bankers agree that the country
will have to pay up to get a deal
done in the fourth quarter.
CORPORATE STRESS
The weak rupiah is also raising
alarm for Indonesian corporate
issuers who have previously
relied on international funding
- even if they hedged their
currency exposure.
“Almost all companies in
Indonesia with FX hedges
will have seen that protection
become less effective, as the
currency spot rate is above the
high-end of the hedges they
have,” said Harsh Agarwal, head
of Asia credit desk strategy at
Deutsche Bank. “The macro
picture doesn’t look great either,
so it’s hard to be constructive.”
This has become troublesome
for Indonesian developers in
particular. Fitch says those
companies have 50% or more of
their borrowings in US dollars.
Concerns over the currency
impact on bond issuers have cast
doubt over demand for planned
deals. Independent power
producer DSSP POWER SUMSEL, the
only Indonesian borrower actively
marketing a US dollar bond,
already has a battle on its hands
to win over investors because
of its affiliation with the SinarMas Group, whose Asia Pulp and
Paper unit was responsible for the
biggest and most controversial
default following the Asian
financial crisis.
Bankers on the deal say the
coal power producer may try to
sell US dollar-denominated five-
year non-call twos this week.
The last Indonesian company
to issue US dollar bonds was
Modernland Realty, which
printed a quick-fire deal in
August – a US$150m three-
year non-call one. Intiland
Development postponed athree-year non-call two the same
month. Before that, state-owned
electricity distributor Perusahaan
Listrik Negara had issued US$2bn
in two tranches in May.
Despite the threat from a
tumbling currency, investors
may draw some relief from the
lack of material maturities in
the next two to three years,
according to Deutsche’s Agarwal.
“As long as they keep paying
coupons, things should be okay.
There are also some investors
who are happy to hold double-
digit yielding bonds,” he said.
“Sentiment is not great, but
there is value from a long-term
perspective. In the short term
though, there is no visible
catalyst for a rally, in my view.”
The government has unveiled
several measures to stop the
rupiah from breaching its all-
time low of 16,800, such as
controlling imports which had
been surging, putting a strain
on onshore dollar supply. Bank
Indonesia has raised interest
rates four times since May, by a
total of 125bp, to try to restore
confidence in the currency.
The next policy meeting is on
September 26-27. within the overall 49% gearing
limit of an InvIT/REIT and any
debt issuance above 25% of the
asset value needs the approval
of unit holders.
India Grid’s InvIT sold Rs2.5bn
of 10-year bonds at 8.6% to
finance ongoing acquisitions
and for general corporate
purposes. However, it fell short
of its Rs15bn target as the issuer
was not willing to pay the high
rates demanded by investors.
UNKNOWN STRUCTURE
The bonds for the Brookfield
and Blackstone trusts will be
the largest bond offerings by an
InvIT or REIT so far.
While the exact structure
of the Brookfield pipeline deal
is not yet known, the InvIT
is expected to issue five-year
bonds at a yield of around
9.25%–9.35%, according to the
bankers.
Embassy Office Parks REIT,
which will contain office
assets in Bengaluru, Mumbai
and Pune, has been trying to
launch an IPO for more than
three years. It wants to offer a
dividend yield at or below the
10-year government of India
bond, in contrast with typical
InvIT IPOs in India that tend
to offer a yield above the risk-
free benchmark. The 10-year
Indian government security
was trading at a yield of around
8.06% on Thursday.
REITs and InvITs are taking
to the bond market now on
concerns that interest rates will
rise further. Raising debt can
help them to optimise their
capital structures and increase
returns for equity investors.
“Once the debt is repaid, the
asset should generate additionalreturns for the investors,” said
Bhairav Dalal, partner for tax
and regulatory at PwC India.
“The other reasons for raising
debt could be to limit the
overall dilution or to refinance
an expensive debt.”
InvITs/REITs issuing bonds is
a welcome development for the
bond market. The Brookfield-
backed InvIT bond is expected
to win a local AAA rating.
“We will evaluate the bonds
for diversification and yield
pick-up after understanding
the contours of the deal,” said
Lakshmi Iyer, chief investment
officer of debt and head of
products at Kotak Mutual
Fund. “While the bond market
sentiment is bad because of
the rise in yields, there will
be takers for a AAA rated
InvIT bond because it is a new
product, although there couldbe illiquidity risk.”
If the mammoth Rs65bn
bond issue by Brookfield sails
through, “more InVITs and
REITs will come and raise
money from the bond market,”
said Iyer.
As more infrastructure and
property assets are completed
and begin generating cash, they
could be injected into existing
trusts or new vehicles.
“We could see three to four
InvIT issuances a year,” said an
executive from a domestic law
firm.
India has yet to see its first
REIT listing, but there are
hopes that the debut issue
could be coming soon.
“We have already seen some
traction on InvITs and hopefully
before the end of the year India
should witness its first REIT,”
said PwC’s Dalal. For daily news stories
visit http://www.ifrasia.comCRISIS TALK?
RUPIAH’S YTD 9% SLUMP PALES AGAINST 50% LOSS AHEAD OF ASIAN CRISISSource: Thomson Reuters Eikon. FX rate rebased to 100 at Jan 101 Jan 01 Feb 01 Mar 01 Apr 01 May 01 Jun 01 Jul 01 Aug 01 Sep
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