Indonesia Capital Markets Deal

IFR Asia Awards 2018
3 min read
Daniel Stanton

Jasa Marga opened an alternative source of funding for Indonesian issuers with the first offshore rupiah bond, creating a new asset class for global investors and a new way of channelling funds into Asian infrastructure.

The toll-road operator’s Rp4trn (US$276m) three-year Komodo – named after the giant Komodo lizard native to Indonesia – drew orders of Rp15trn, demonstrating the market’s huge potential and allowing it to price at 7.5%, which was 37.5bp inside initial guidance.

The December 2017 issue gave global asset managers a way to take exposure to the country’s infrastructure story, while also allowing Jasa Marga to manage its currency risk, following a concerted effort by Bank Indonesia to encourage companies to avoid taking excessive foreign currency risk in their borrowings.

As a result, the instrument is likely to be crucial to financing President Joko Widodo’s infrastructure ambitions and attracting foreign capital without adding unnecessary currency risk for the country’s infrastructure developers.

The issue paid a slight premium over onshore bonds from other state-owned issuers, while investors were able to earn a pick-up over the Indonesian sovereign’s offshore bonds if they swapped to dollars. All the same, the pricing and size were unexpectedly good for an issuer that had never sold offshore bonds in any currency before.

Jasa Marga also absorbed the withholding tax for offshore investors, making the offering more attractive for them than venturing into the onshore corporate bond market.

Notably, the issue came at a time when Dim Sum and Masala bond issuance volumes were in the doldrums, making it far from obvious that foreign investors would be receptive to an offshore rupiah offering, while the split Baa3/BB+ (Moody’s/S&P) rating meant that the deal was less straightforward than a typical investment-grade transaction.

Offering the bonds under 144A/Reg S format brought them to a broad audience, including US investors traditionally keen on Indonesian credits. The chunky issue size addressed investor concerns about liquidity, while also beating the typical onshore corporate deal.

Indonesian investors bought 15% of Jasa Marga’s bonds, 40% went to the rest of Asia, 26% to the US and 19% to European investors. By investor type, fund managers bought 84%, and banks, public institutions and private banks took a combined 16%.

Deutsche Bank, HSBC, Mandiri Securities and Standard Chartered were joint bookrunners.

The slump in emerging market currencies in 2018 meant that the Komodo market did not quite live up to the potential shown in the first issue, but a well-received follow-up transaction from engineering and infrastructure company Wijaya Karya the next month proved that Jasa Marga had awakened international investor interest. There is a pipeline of issuers looking to follow when conditions improve.

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