June 12, 2020 / 9:08 AM / a month ago

Indonesia Inc lines up for offshore debt

HONG KONG, June 12 (LPC) - Indonesia is emerging as the lone bright spot in South-East Asia’s syndicated loan market with a pipeline of around US$6bn of offshore loans primed for launch in the coming months.

Instant noodles manufacturer Indofood Sukses Makmur, state-owned electricity utility Perusahaan Listrik Negara, gold and copper miner Freeport Indonesia and Bank Rakyat Indonesia are among a number of top-tier borrowers that are eyeing offshore borrowings.

The deals will provide a boost for lenders in the region, who have been starved of action since the Covid-19 outbreak upended economic activity globally. Year-to-date loan volume from Indonesia stood at US$4.87bn as of June 11, nearly a third lower than US$6.97bn raised in the first six months of 2019, according to Refinitiv LPC data.

“Indonesia seems to be the brighter spot in South and South-East Asia with a few deals cooking, although traction is very slow,” said a Singapore-based syndicated loans banker. “That said, transactions are coming in and will boost volumes a lot in the second half.”

Indofood is expected to shortlist around half a dozen banks for a US$2bn loan backing the proposed US$3bn acquisition of its manufacturer partner Pinehill.

The deal is expected to be well received given it is an acquisition financing and marks the borrower’s return to the loan market for the first time in more than a decade.

PLN is seeking a US$500m multi-tranche loan, adding to another US$1bn borrowing it was sounding out a couple of months ago.

Borrowers that initially opted for club loans are now mulling the option of syndication. BRI’s US$1bn multi-tranche financing and Indomobil Finance Indonesia’s US$240m three-year facility were initially intended as club loans.

However, the financings are now expected to be syndicated. Along with agricultural commodities firm FKS Food and Agri’s US$250m five-year refinancing, they will be among the first few to test sentiment.

“No deals from Indonesia have launched post-Covid. It’s a chicken-and-egg situation, where lenders are waiting for new deals to launch in order to gauge market appetite and pricing levels,” said a second Singapore-based loans banker.

PANDEMIC JITTERS

For some Indonesian borrowers, the future looks more uncertain. Financial services company Sarana Multi Infrastruktur is still undecided on the launch of a US$500m five-year loan after mandating five banks in April. The deal marks its return to the syndicated loan markets after a four-year hiatus.

Meanwhile, Freeport Indonesia is going back to the drawing board with a US$2.8bn loan it was preparing to launch in April after mandating nine banks in late February. A smaller loan size of around US$1.2bn–$1.5bn is being discussed, but it could be another two months before the borrower makes a decision on the fundraising for the construction of a new copper smelter.

Adding to the jitters, telecommunications company Tiphone Mobile Indonesia fell victim to the pandemic, having defaulted on a US$181m-equivalent three-year loan signed in June 2018. The company, which missed an interest payment in March, has hired a financial adviser to restructure its debt.

PAYING UP?

Given the circumstances, some borrowers might need to pay up in order to attract bank liquidity, especially as participating banks have become more risk-averse and funding costs are rising.

“For widely syndicated deals, I expect pricing to be wider to take into account the funding costs of a wider pool of participating banks,” said the first loans banker. “We have seen the cost of funds for banks has gone up by 50bp–100bp on average.”

Borrowers with strong financials or rarity value, such as PLN and Indofood, are likely to achieve tighter pricing, he said.

Pricing on BRI’s new financing, comprising a US$500m one-year tranche, a US$200m two-year piece, and a US$300m five-year portion is only marginally higher than for its previous multi-tranche facility in March 2019.

That US$700m loan paid top-level all-in pricing of 60bp, 91bp and 103bp based on interest margins of 40bp, 74bp and 84bp over Libor and remaining lives of 0.75, 2.75 and 3.75 years for its three tranches.

Despite what was considered tight pricing then, BRI tasted success with a US$700m three-tranche loan, which attracted participation from 27 lenders, including 15 that joined in general syndication.

Fifteen months later, sentiment among lenders has turned cautious largely because of the impact from the pandemic.

“We will be very selective in lending to borrowers from Indonesia’s banking sector as Moody’s has downgraded Indonesia’s banking industry outlook to negative from stable in early April over concerns of rising credit costs and declining profitability as the pandemic is disrupting the global economy,” said a senior loans banker from a Taiwanese bank.

Reporting By Chien Mi Wong; additional reporting by Evelynn Lin; editing by Prakash Chakravarti and Chris Mangham

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