JAKARTA/HONG KONG, June 5 (Reuters) - Indonesian companies are striving to utilize a window of opportunity to raise funds on better terms that has opened after Standard & Poor’s long-awaited upgrade of the country’s credit rating to investment grade.
Before its May 19 upgrade of Indonesia’s sovereign credit outlook to ‘BBB-’ from ‘BB+', S&P had held out for more than five years from matching the ratings awarded by its peers, Fitch and Moody‘s, to Southeast Asia’s biggest economy.
S&P’s move, which reflected what it saw as reduced risks to Indonesia’s fiscal position, now gives the country access to a wider pool of funds as some money managers make portfolio allocations based on the U.S. agency’s rating.
A rating upgrade favorably impacts the market for government bonds. But the increased liquidity it generates can drive down yields, thus also helping corporate borrowers. And the S&P upgrade comes after some Indonesian companies have benefited from a rebound in commodity prices and stronger infrastructure spending in the country.
At least a dozen companies such as state-controlled port operator PT Pelabuhan Indonesia III (Pelindo 3) and petrochemical producer PT Chandra Asri Petrochemical Tbk are seeking fresh funds. Companies that are issuing debt such as Pelindo 3 are hoping to get a lower borrowing cost, while those like Chandra Asri aim to get attractive pricing for selling more shares.
Already this year, Indonesian borrowers have been active.
In the five months, 39 Indonesian companies issued debt and equity worth a total of $8.5 billion, Thomson Reuters data showed. That compares with 14 companies that raised $2.45 billion during the same period a year earlier.
Pelindo 3, one of seven Indonesian companies that S&P also upgraded last month, is planning to issue up to 5.5 trillion rupiah ($413.4 million) in bonds this year to expand ports, said corporate secretary Faruq Hidayat.
“We want to take advantage of the momentum,” Hidayat said. “With the lifting of our rating, hopefully we will be more competitive.”
Demand for Indonesian corporate bonds, especially those that mature in 1-3 years, has picked up as they offer more attractive yields than government bonds, said ANZ strategist Jennifer Kusuma.
Fund managers also say an improvement in Indonesia’s economic fundamentals and a rise in foreign-currency reserves are expected to cushion it from any outflows when the Federal Reserve again raises U.S. interest rates.
“The inflows into Indonesia started even before the upgrade because Indonesia has been a good reform story these past few years,” said Mark Baker, Hong Kong-based investment director at Standard Life Investments, which is overweight on Indonesian government bonds.
“The government has recognized the need to ramp up investments, particularly in infrastructure and lift revenues which are low relative to GDP,” he said.
However, some potential investors are holding back due to concerns about political stability and other obstacles for foreign direct investment in Indonesia, such as red tape.
Some funds are also becoming pickier due to the increased supply of share and debt sales.
“I am being selective because not all companies that are doing IPOs (initial public offerings) are good and the timings are also close together,” said Andry Taneli, a portfolio manager at Jakarta-based Ciptadana Asset Management.
“So we have to wisely allocate our funds,” he said, adding that he prefers the consumer, banking and infrastructure sectors.
($1 = 13,305 rupiah)
Additional reporting by Cindy Silviana and Fransiska Nangoy in Jakarta and Gaurav Dogra in Bengaluru; Editing by Richard Borsuk