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, capitalising on Standard & 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 can't 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 securitised to capital markets." Indonesian Finance Minister Sri Mulyani Indrawati told Reuters ahead of the G20 summit in Hamburg on Thursday that the government plans to securitise 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 securitisation 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 securitise about half of the 4 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.