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Indonesian firms to sell dollar bonds despite rising concerns over private debt

Indonesian firms to sell dollar bonds despite rising concerns over private debt

Raras Cahyafitri, The Jakarta Post, Jakarta | Business | Sat, June 21 2014, 2:47 PM

Amid concerns of rising private sector debts, Indonesian companies are continuing to seek external funding in foreign currencies to support expansion or the refinancing of previous debts.
A number of companies have plans to sell dollar-denominated bonds, including the US$1.5 billion unsecured notes proposed by state-owned oil and gas giant PT Pertamina; $450 million bonds by coal miner PT Berau Coal Energy and $175 million bonds by property developer PT Pakuwon Jati, among others.
Pertamina’s notes, which are offered with 6.45 percent coupon rate and will be due in 2044, obtained a Baa3 rate from Moody’s Investor Service. Under the rating, the obligation is seen to have a moderate credit risk.
“The outlook of the rating is stable,” Moody’s wrote in a statement published on Friday.
Pertamina is planning to disburse up to $7.85 billion in capital expenditure (capex) this year to support its growth target. Out of the total spending, it said, 48 percent will be allocated to its upstream business; 22.2 percent to business development; 13.4 percent to gas business; 6.4 percent to its business; 6.1 percent to marketing activities; and around 3.9 percent to support its petrochemical business and other subsidiaries.
Pertamina is currently launching aggressive moves in an effort to achieve production of 2.2 million barrel of oil equivalent per day (boepd) by 2025, upstream director M. Husen has said.
Seeking funding from the bond market was inevitable as the company needed to finance its expansion in the domestic and international markets, he added.
Pertamina’s senior vice president for upstream business development Denie Tampubolon has also said that the company targeted to secure production of 600,000 boepd from acquired fields in other countries by 2025.
This year, the company is expecting around 63,000 boepd from its fields overseas.
Pertamina has set aside $2 billion to finance overseas acquisitions to support its expansion plans and help achieve its targets.
Growing concerns over the private sector’s rising foreign debts has been highlighted by the central bank in recent years. Senior Deputy Governor Mirza Adityaswara has warned that exposure on external debt carries currency risks, especially if the company does not have a foreign currency revenue stream.
Earlier this week, Bank Indonesia (BI) noted that the private sector’s foreign debt rose by 12.9 percent to $145.63 billion in April year-on-year. The April growth was also higher than 12.2 percent and 11.6 percent in March and February, the latest external debt statistics show.
Financial leasing and business services were the largest borrower, followed by manufacturing as well as the mining and drilling sector.
Despite higher risks, some mining companies, which are suffering from declining commodity prices, might have no other choice than to sell new bonds.
Troubled coal miner PT Berau Coal Energy released late on Thursday a prospectus highlighting its plan to sell up to $450 million in debt papers.
Proceeds from the bond issuance would be used to refinance its $450 million bonds, which were issued in 2010 and are due to mature next year.
“Given the refinancing [plan], the company will have bonds with a longer maturity period, therefore, it will support liquidity,” Berau said in the published prospectus.
The new bonds will mature in five years and will be offered with a maximum coupon rate of 12 percent, the prospectus reads. That compares with Berau’s 2010 bond coupon rate of 12.5 percent.
Berau, one of the major coal miners in the country, is struggling to manage its liquidity as the global coal outlook remains uncertain.
The coal miner reported $10.18 million in net loss during the first three months of the year, leading to worries over the company’s ability to pay its debts.
Besides the $450 million bonds, Berau also has $500 million guaranteed senior secured notes due to mature in 2017.
Apart from the bleak coal market, Berau has also been under the spotlight over good corporate governance, particularly related the alleged misuse of funds by previous directors.
Moreover, a plan to unwind the company from its parent, Asia Resource Minerals, has also created worries that the company will lack transparency and accountability, Moody’s said in earlier report.
Berau, which is currently 84.7 percent owned by London listed Asia Resource Minerals Plc., is planning to seek approval for the bonds issuance in an extraordinary general meeting of shareholders scheduled on July 21.
Shares in Berau, which are traded on the Indonesia Stock Exchange (IDX), closed at Rp 93 apiece on Friday, declining by 4.12 percent compared to a day earlier.

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KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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