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SMI to offer bonds with short tenors only

Stateowned infrastructure financing company PT Sarana Multi Infrastruktur (SMI) plans to prioritize shortterm bonds in its issuance plan this year, in anticipation of increasing coupon rates due to the United States Federal Reserves’ Fund Rate increase.

The company has announced a plan to issue bonds worth Rp 10 trillion (US$750 million) this year, part of its shelfregistration bonds totaling Rp 30 trillion approved by the Financial Services Authority (OJK) last year. After last year’s issuance of Rp 5 tri 1lion, the company still has a bonds issuance quota of Rp 25 trillion.

“We will split the Rp 10 trillion issuance plan in two. The first one will be issued in the third quarter, and another one in the fourth quarter. Both are short term bonds, with threeyear and fiveyear maturities,” SMI finance director Agresius Robajanto Kadiaman told The Jakarta Post during the company’s anniversary event in Jakarta on Wednesday.

In its latest bond issuance in November last year, SMI offered not only the three and five year bonds, but also those with 10 and 15year tenors.

Agresius acknowledged that bond issuances in the third and fourth quarter were likely to pose bigger risks of increased coupon rates as The Fed had planmed to increase its benchmark rate by three to four times this year. The first increase happened jusit last week, with at least one more increase until the third quarter.

“We will conduct a book building as fast as possible in May or June, by the time the Fed Fund rate has increased by one more time or two times. There’s no way that we can finish earlier than that as we need to see first which projects are feasible to be fundedhe said.

Some other stateowned financing companies, such as Indonesia Eximbank, have announced a frontloading issuance a strategy of putting most bonds issuances in the first half of the year, to anticipate the increasing coupon rate in the market. Such a strategy can only be feasibly applied for issuers with fixed disbursement of bonds proceeds.

“We are different from other government institutions. The project and the amount of the proceeds placement need to be cleared first. Issuing the bonds with unclear funds allocation will only lead to burdensome interest,” he said.

SMI president director Emma Sri Martini said that the company had set a financing target of Rp 66 trillion in 2017. However the value could rise higher as some additional projects might come later in the second half of the year, such as the Jakarta light rail transit (LRT).

“Most of the Rp 66 trillion commitments are from transportation sector. We have yet to include the LRT, as the new scheme has not been cleared yet,” she said.

The ambitious project saw financing scheme revision due to massive cuts in the state budget. After raising a white flag from fully funding the Rp 27 trillion project, the government will only disburse Rp 9 trillion of state capital injection (PMN) to stateowned railway firm PT Kereta Api Indonesia (KAI) as well as Adhi Karya, allowing them to grab Rp 18 trillion in new loans for the project.

Emma hinted that out of the Rp 18 trillion of loans, SMI could provide about Rp 2 trillion. The company was also in discussions with stateowned banks to provide at least Rp 6 trillionRp 8 trillion to start construction this year. “Our capacity is around Rp 2 trillion. While waiting for other banks to join, we can first make a bridging loan. The consideration for the project should be beyond profit and loss, because it is a public Service obligation for the stateowned companies (SOEs) ” Emma said.

The government through the Finance Ministry injected Rp 28.5 trillion into the company’s equity in 2016, boosting its total assets to Rp 44.3 trillion with 1.55 times of leverage. Its 2016 revenue reached Rp 2.3 trillion with Rp 1.2 trillion in net income, reflecting a 52.17 percent profit margin.

 

Jakarta Post - SMI to offer bonds with short tenors only

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