Amid slower expansion in the banking industry, State-Owned Enterprises (SOE) Minister Rini Soemarno has pushed SOEs to raise funds from the capital market to oil the country’s ambition for infrastructure, despite Finance Minister Sri Mulyani Indrawati’s warning over state power firm PLN’s excessive debts.
PLN, the country’s most indebted SOE, is maintaining its plan to issue Rp 2.5 trillion (US$185 million) in bonds in October, part of a group of SOEs set to raise a total of Rp 31.87 trillion in proceeds, consisting of Rp 22.1 trillion in bonds and Rp 9.77 trillion in equity issuances, in the remaining months of the year.
Rini said the capital market could support government programs such as toll-road development and the ambitious 35-gigawatt electricity program. From September 2014 to September this year, SOEs built 560-kilometers of toll roads and saw 46 percent progress in power plant construction.
“Infrastructure projects need a lot of money, so we need to seek funds from both domestic and global markets,” she said on Thursday.
Rini believes such moves would not lead to the crowdingout effect, where an oversupply of bonds would force issuers to set higher interest rates to attract investors, as the SOEs had diversified the instruments.
After PLN and toll road operator PT Jasa Marga launch their asset-backed securities in the third quarter, the two firms will issue rupiah-denominated bonds worth Rp 1.5 trillion and Rp 2.5 trillion, respectively, in the fourth quarter.
Within the same period, Jasa Marga along with construction company PT Wijaya Karya are set to launch “komodo bonds” in November. They will be the first rupiah-denominated global bonds to be listed on the London Stock Exchange.
“Komodo bonds enable SOEs to access global financing without increasing currency risk exposure,” Rini said.
Next, she said the ministry would securitize hotels and properties under PT Patra Jasa’s management into a real estate investment trust (REIT). “Other than Patra Jasa, we will also securitize the development of a new town in Walini, West Java, into a REIT,” she said, adding that the 10,000-hectare town will use agricultural land managed by PTPN VIII.
Previously, the SOE Ministry’s undersecretary for company restructuring and development, Aloysius Kiik Ro, said from January to November, the bond issuance of SOEs had reached Rp 96 trillion. With the additional Rp 22.1 trillion financing in the fourth quarter, the bond issuance of SOEs would reach Rp 118.1 trillion in 2017.
“The bond emissions for 2018 will be around Rp 110 trillion as well. Indonesia needs Rp 1.1 quadrillion for infrastructure annually,” Aloysius said.
The aggressive fund-seeking of SOEs, however, has created worry over piling debt. Sri Mulyani recently expressed concern over PLN’s debt.
“PLN’s debt service coverage ratio [DSCR] is only 0.79, which is lower than the 1.5 required by the World Bank’s debt covenant,” she said. DSCR is a ratio of cash flow to debt interest and principal payments.
PLN president director Sofyan Basir said his company could reach the required ratio by the end of the year through efficiency programs that had until now helped saved Rp 42 trillion. “We can fulfill the covenant as its deadline is in December, so why should we raise the issue now? There are two months left,” he said.
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