Finding external funding is not complicated for companies with good performance. The Financial Services Authority (OJK) is simplifying the issuance of bonds and corporate sukuk offered to professional investors without going through a rating process. The fast track for bond issuance is only valid for issuers that previously had a minimum rating of idAA or investment grade.
OJK Regulation No. 11/POJK.04/2018 concerning Debt Securities and/or Sukuk Public Offering to Professional Investors was enacted on 1 August 2018. Based on this regulation, the professional investors in question are financial service institutions such as banking, pension funds, insurance companies, investment managers, and securities companies.
Individual investors can also become professional financiers if they have at least one year of experience in investing in the capital market and the ability to analyse investment risks in the market. Individual investors must also have a net asset value of at least Rp 10 billion, excluding land, buildings and intangible assets.
The OJK also requires individual investors to have an average investment portfolio in the capital market of at least Rp 3 billion in one year prior to the offering of the bonds or sukuk.
The next professional investors are legal entities, joint ventures, associations or organized groups with the ability to analyse the risk of investment in securities and experience in investing in the capital market for at least one year.
This type of investor must have net assets of at least Rp 20 billion, excluding land, building and intangible assets. Legal entity investors must also have an average investment portfolio in the capital market of at least IDR 6 billion in one year prior to the offering of the bonds.
In issuing debt securities, corporations are still required to register with the OJK and prepare a prospectus and other required documents. They can use services from underwriters.
Financial Services Authority (OJK) Board of Commissioners Chairman Wimboh Santoso said the regulation was issued to increase access to corporate financing through the capital market. “One of them is the issuance of bonds and sukuk, with limited offer to professional investors,” he said.
The offering period of the debt securities to these professional investors is one working day at the earliest and a maximum of three working days, even though the public offering process usually takes weeks.
Although Regulation No. 11/2018 does not specifically mention infrastructure funding, the rules are in line with government programs. Major State-Owned Enterprises (SOEs) tasked with constructing infrastructure projects have investment grade ratings that meet these criteria. Thus, infrastructure funding needs can be more quickly fulfilled under this scheme.
According to the SOE ministry, bond issuance by state companies this year is estimated to reach Rp 90 trillion, lower than the realisation of Rp 110 trillion last year.
The domestic bond issuance target was reduced because the SOE ministry received complaints from private companies having difficulty competing with SOEs for market funding. SOEs are also looking for alternative funding through initial public offerings (IPO) of subsidiaries, asset securitisation, limited participation mutual funds (RDPT), and Komodo Bonds.
PT Kiwoom Sekuritas Indonesia Associate Director of Research and Investment Division Maximilianus Nico Demus said Regulation No. 11/2018 would be a positive sentiment for companies that need fast funding. “The cost of issuing bonds and sukuk is cheaper because it is not through a public offering.”
The rated bonds will only facilitate market participants and investors to find out the future risks for them. However, the rating does not guarantee debt securities or bonds will not experience a default.
He gave the example of a default case on interest in Medium-Term Notes (MTN) some time ago. This rule does not ignore the precautionary principle because professional investors are able to understand the level of risk. However, professional investors still need to look at the development and performance of the bonds or sukuk issuers.
Bank Tabungan Negara (BTN) is poised to utilize the loosening of the OJK regulation. BTN Finance Director Iman Nugroho Soeko said it would issue bonds to professional investors next year.
So far, professional investors have bought most of the BTN bonds, so the issuance scheme is more suitable to be applied by the company. Removal of the rating process will shorten the process and cut costs in bond offerings.
Normalisation of US interest rate policy and negative sentiment from the US-China trade war have made financial markets volatile in recent months, and foreign investors have withdrawn their funds from the markets of developing countries, including Indonesia.
Since the beginning of this year, foreign investors recorded net sell of Rp 53.9 trillion in the stock market and net buy of Rp 18.89 trillion in the state bond market as of 17 September.
Based on Indonesia Stock Exchange (IDX) data, the total issuance of bonds and sukuk was 63 emissions from 41 companies with a value of Rp 77.71 trillion to 7 September 2018. PT Bahana Sekuritas President Director Feb Sumandar said the interest of corporations to issue bonds as a source of funding remained high.
In the first half of 2018, Bahana was the bond issuance underwriter for PT Perusahaan Listrik Negara (PLN), Bank Rakyat Indonesia (BRI), PT Waskita Karya Tbk, Pegadaian, PT Permodalan Nasional Madani (PNM), and PT Wom Finance Tbk (WOMF) with total value of Rp 16.7 trillion.
In the second half of this year, Feb predicts more than two companies will give a mandate to Bahana to be their IPO underwriter and more than four companies will issue bonds. “We believe various fiscal policies to maintain the stability of the domestic financial market are a positive sentiment for investors to re-enter the Indonesian financial market,” he said in a press release.
PT Pemeringkat Efek Indonesia (Pefindo) said some issuers had cancelled their bond issuance plans in the second half of this year, mostly MTN issuance. To August, Pefindo had a mandate for rating upgrades in the context of bond issuance worth Rp 42.4 trillion.
The three largest bond issuing sectors were banking with 10 corporate bonds worth Rp 18.5 trillion from 10 companies, telecommunications with one bond worth Rp 5 trillion from one company, and property with one bond worth Rp 3.5 trillion from one company.