Participants in the roundtable were:
Robert Pakpahan, director general of budget financing and risk management, Ministry of Finance, Republic of Indonesia
Aaron Gwak, head of capital markets, Asean, Standard Chartered
Aldian Taloputra, senior economist, Indonesia, Standard Chartered
Iman Rachman, finance director, Pelindo II
Orias Petrus Moedak, chief executive, Pelindo III
Silvano Rumantir, president director, Mandiri Sekuritas
Susiwijono Moegiarso, acting executive director, Indonesia Eximbank
Toby Fildes, managing editor, GlobalCapital
GC: Let’s begin by talking about Indonesia’s growth and growth prospects.
|Aldian Taloputra, |
To give some perspective, the economy bottomed out in 2015 after starting to slow in 2009 after the financial crisis. Only in 2016 did it start to pick up.
After those difficult measures, the economy now appears to be in a good position, having stabilised. We saw momentum begin to build in 2016.
|Aaron Gwak, |
Robert Pakpahan, Republic of Indonesia: Regarding the previous statements about the performance of the economy, I myself as the official from the Ministry of Finance am quite proud of the achievement of economic growth in recent times. If you look at the data of the last 10 years the average economic growth has been 5.7%, even though in the last two years — 2016 and 2015 — the economic growth was lower than forecast. The lowest was 2015, 4.8%, and that was the bottom. Last year we achieved 5.0% and in 2017 the government is targeting 5.1% in the budget. Looking ahead we think we should be able to do slightly better than 5.1%, perhaps as much as 5.4% in 2017. For 2018 we are looking at between 5.4% to 6.1% but likely to be around 5.6%, and then above 6% in 2019. Some forecasts have put us at 7% for 2019 but this might be a bit high.
Some of them even think that we should be able to achieve higher economic growth if we are willing to increase our borrowing and relax our spending limits. However, other investors are appreciative of our efforts and think we are doing the right thing because economic growth above 5% is quite remarkable at the moment, compared to many other countries.
Investors on our roadshows appreciated our prudence and our consistency to maintain the deficit below 3%. Last year the deficit was 2.46%, and then this year, according to our State Budget, it is set to be 2.41%. Maintaining the deficit below 3% is something that really is a positive point for the government and helps gain investors’ trust. The debt to GDP level of 28% is also something that, according to investors, is comforting to them.
So all those risks you mentioned could be felt here in Indonesia through capital flight. This is why it is so important for us as a country to maintain very consistent and credible economic growth with the right direction of fiscal policy and also very stable monetary policy to make sure the effects of any external issue or shock are minimised.
Bank Indonesia has not hesitated in increasing the interest rate to stabilise inflation and has become more flexible in managing the exchange rate. A more flexible exchange rate provides a buffer to external shocks. Bank Indonesia has also introduced a hedging requirement for companies that borrow abroad and also imposed a rupiah transaction requirement to lower the demand for US dollars by residents in conducting domestic transactions.
Gwak, Standard Chartered: Over my career I’ve wanted the issuer to have a little bit of luck in picking markets and windows. Sometimes there’s obviously a general plan behind it, but sometimes it’s just that particular day. But what I’ve noticed through meeting with investors globally is that the fundamental appetite for Indonesia is very strong. So, yes, where the Treasuries trade on a particular day will influence the ultimate coupon and the price that Indonesia has to pay, but overall demand for Indonesia risk is robust.
Rumantir, Mandiri Sekuritas: It depends on the industry sector. In the case of Pertamina, for example, obviously there’s a global commodity price that is affecting their capex. Whereas, for Perusahaan Listrik Negara (PLN) the reasons are very different. It’s very domestic. It’s very budget-driven. It’s very affordability-driven as well. So it very much differs between one SOE and the other. Another example is Bank Mandiri, which has not issued global bonds since August 2002, but has started to issue rupiah bonds totalling Rph5tr in 2016. The demand is also still high as liquidity in rupiah is ample following the tax amnesty programme, thus making issuance costs also lower.
PLN does actually need financing because it has got assignments to build 35GW of power capacity, although they got a loan from a multilateral, which might partly explain why they have not come to market yet. But I think soon they will come to the market.
|Robert Pakpahan, |
Republic of Indonesia
There is a lot to do — a lot of assignments have already been handed out and will be handed out that will need private financing, such as power, toll roads, ports, water, airports, rail links.
Gwak, Standard Chartered: I agree with Silvano’s earlier point about looking at it from a positive perspective, and as Orias has mentioned as well, I think there are a lot of liquidity alternatives to a dollar bond. Gone are the days when a dollar bond was the only option for Indonesia. Now there’s quite a prolific domestic rupiah bond market that a number of construction companies, for example, have accessed, or are in the process of accessing. And although the tenor hasn’t yet extended all the way to that of the international bond markets, at least there’s certainly some scope for that. And we shouldn’t forget the loans and bonds discussion. The ability for banks to lend in domestic currency, as well as foreign currency onshore, has increased greatly in recent times.
Rumantir, Mandiri Sekuritas: It depends whether we’re talking about first time issuers or repeat issuers. For debut issuance in the international markets but those who have access to domestic bond markets, it will still be an upgrade in terms of requirements, but it will not be as cumbersome as for a company who has never entered any bond market.
|Orias Petrus Moedak, |
Moedak, Pelindo III: All the SOEs that want to issue foreign bonds can fulfil the requirements of international institutional investors. But another issue is the approval process for offshore borrowing. In the past we needed six high level officials including the central bank governor and maybe that made many Indonesians a bit reluctant to go through that process. Now I hear the process only requires three senior officials but I think that’s still a challenge. I suppose it means that if the company really needs the financing then the management will be prepared to go through that process.
Gwak, Standard Chartered: On the subject of risk management, it has been interesting to see how Indonesia has, in recent years, learned to be naturally hedged.
One of the things that could possibly open up more avenues for external borrowing is a deeper swap market for Indonesian companies. A deeper swap market can be a cost-effective way for Indonesian companies that have domestic currency needs to have access to international markets, for example.
For Indonesia, certainly from an SOE perspective, the rating has helped. Having said that, Standard Chartered was involved, in 2015, with Garuda when it did a highly successful unrated $500m sukuk. Incidentally, if an issuer is not rated, having a developed yield curve very much works in its favour as investors have the platform to judge your pricing and credit.
|Iman Rachman, Pelindo II|
Pakpahan, Republic of Indonesia: The tax amnesty certainly should help because there has been more than Rph100tr of assets repatriated. I know most of these assets are still placed in the banking system. According to the law they have to stay invested in Indonesia for at least three years. Some of them are still in foreign currency. They’re trying to find the instruments to channel out the asset. But slowly this money will be invested: some of it will go to government bonds or corporate bonds. So, there is potential there I think from the tax amnesty.
Rumantir, Mandiri Sekuritas: The honest answer is: we sure hope so. But the real answer is that corporates are reviewing their options very carefully. Some of the most sophisticated corporates are fully aware of what’s happening in global markets. I think they are anticipating some asset reallocation, also in the equity side of the market — a flight to quality and more allocation to the US. We have seen a lot more high yield issuers from Indonesia in the last two or three months than we have in the last two years perhaps and all of them, I daresay, have met with very good responses.
Gwak, Standard Chartered: You diversify when you want to expand the different pockets of demand you have access to. Which is what the Republic is doing. It has access to the US dollar conventional market, it has developed the sukuk market, it has developed the euro market and the yen market. So it now has a very diverse pool of pockets of investors that it can tap into.
But if fundamentally you’re not coming to the markets often enough, then the reasons to access international sukuk are less compelling. Unless there’s a specific demand pool that once in a while presents itself, for example when Garuda came to market and accessed the sukuk markets, because Middle East investors were less dependent on ratings and there was ample liquidity support of the government SOE. But that is a specific situation.
|Susiwijono Moegiarso |
Moedak, Pelindo III: I think we just care about the money… but foreign investors coming in would be a good thing — it could create price tension. We are issuing bonds actually this year, we are aiming for Rph5tr in the domestic market. So foreign investors are most welcome!
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