The line between local and international banks is blurring as domestic lenders beef up their balance sheets as well as product and liquidity capabilities, says Thomas Husted, the finance director of Delta Dunia – an Indonesian mining services company, which has unique and complex banking needs.
Delta Dunia is the listed holding company of PT Bukit Makmur Mandiri Utama, or Buma, the second-largest coal mining contractor in Indonesia.
It is an interesting company to speak to, for two reasons. One, the acquisition of Buma in 2009 has caused Delta Dunia to be a regular fixture in the bond and loan markets, raising $600 million of debt financing, including a $315 million issue of senior secured notes subsequently refinanced through the loan markets.
And two, the nature of the company makes its banking needs quite distinct.
We have more than 11,000 employees, and 10,000 of those are located in Kalimantan, explains Delta Dunia finance director Thomas Husted. Kalimantan is a vast Indonesian province covering most of the island of Borneo.
So cash disbursement and payroll is managed by local banks with branches in remote mining sites. Were a bit different from other companies who can solely rely on international banks. We end up having diversified banking relationships that match a banks strengths to our needs.
We use international banks for offshore revenue collections, liquidity management, capital markets and loans, and local banks for cash management, payroll, loans and FX.
On top of that, capital market ventures have covered the high-yield bond markets and 144a placement, and then international loans.
Since 2011 we have accessed the bank syndication market for $1.4 billion in total funding, says Husted. Bank participants are the international banks, typically with regional offices in Singapore, and a group of local banks with deep dollar liquidity.
Over the last few years, local banks have become much more competitive on pricing, tenor and terms.
How exactly are local banks changing? There are a few things. Aside from larger balance sheets, theres been a rise in sophistication, in the form of both products and systems. On the systems side we have internet banking now with all our local banks, where we can do FX online, US dollar and rupiah transfers, and payroll administration. The product is at international bank standards.
And on the capital markets side there is an increased savviness in how they do lending. They have much larger balance sheets, a lower cost of funds, and as Indonesias rating has come up, that cost of funds has gone down significantly.
Like many commodity companies, Buma is largely a dollar-based company with local operating expenses and salaries are in rupiah historically, not the most stable of cross-rates. Here, too, the line between international and local standards has blurred.
With FX trades, we find the large local banks like Mandiri to be very competitive with any foreign bank. Pricing, systems and process are well delivered, says Husted.
Differences do arise elsewhere. In terms of processing credit, he says foreign and local banks follow a different process.
Local banks are savvy in regards to what exposure they want, and are much more aggressive with the balance sheet, but are less concerned with legal drafting and there is not a local equivalent to the Asia Pacific Loan Market Association standardized process found offshore.
Like many other treasurers, Husted reports the return of the Japanese banks as big lenders, as well as Singaporean homegrown names like DBS. If you want a big loan in this market, those are the core banks to go to along with key local banks like Mandiri.
He reports that 18 months ago many European banks, traditionally strong in this market and particularly in project finance, stepped away, but have returned in the past six months.