News ID: 196320
Published: 0645 GMT July 09, 2017

Indonesian state firms lure foreign firms with share in future revenue

Indonesian state firms lure foreign firms with share in future revenue

Indonesian state firms are courting foreign pension funds by offering a share in future revenue from toll roads, power stations and other infrastructure projects, as part of a presidential drive to secure $10 billion in additional inflows.

The state budget is not enough to fund President Joko Widodo’s ambitious plan to expand infrastructure in Southeast Asia’s biggest economy, a sprawling archipelago where the costs of moving goods around 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 and 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 cannot 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 Group of 20 (G-20) Summit in Hamburg 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.

Indonesia’s biggest toll road operator, PT Jasa Marga Tbk, has begun working to securitize about half of the four 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.

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 is no guarantee the securitization plans will succeed.


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