Funding Indonesia's Infrastructure Push; Eyeing Foreign Pension Funds
From Hamburg (Germany) where he visited the G-20 summit, Indonesian President Joko Widodo instructed his cabinet to increase efforts to attract investment into Indonesia. Now Indonesia recently obtained the investment grade status from all important global credit rating agencies, it should make Indonesia a more attractive investment destination for foreigners, including institutional investors such as pension funds.
Indonesia seeks to collect some USD $10 billion worth of investment to fund power plant projects, toll road projects and other infrastructure projects over the next couple of years.
Thomas Lembong, Head of the Investment Coordinating Board (BKPM), emphasized that Indonesia cannot simply wait for investors to come to Indonesia, but needs to actively promote its investment projects to foreigners abroad as there is plenty of competition from other countries that seek to attract investment. Lembong said pension funds are one of the main targets as they hold large quantities of capital (for example the Canada Pension Fund or Japan's Government Investment Fund).
About one month ago, Bambang Brodjonegoro, Indonesian Minister of National Development Planning (Bappenas), already expressed his intention of doing road shows across South Korea and Australia later this year to "sell" investment projects, especially infrastructure projects, to local investors, including pension funds. Normally, Indonesia offers opportunities in the manufacturing industry or services industry when doing road shows abroad, but rarely it offers infrastructure projects at these occasions.
Although not mentioning the name, Brodjonegoro said one big Australian infrastructure investor (that manages USD $2.1 trillion worth of long-term pension funds) is particularly interested in Indonesia. Brodjonegoro added that, besides Indonesia, this Australian investor is also interested in emerging markets like Mexico, Chili, the Philippines and eastern European countries.
Brodjonegoro said this Australian investor is particularly attractive for Indonesia because it would not seek majority ownership in the projects. On the contrary, it wants but wants to restrict its ownership in the projects to the range of 25 - 49 percent. For Indonesian authorities this is a positive matter. The Australian investor seeks investment through equity financing, debt financing, and/or subordinated bonds. A public-private partnership (PPP) with the Indonesian government would be possible through the availability payment scheme.
Later this year Indonesia will organize a road show to Japan in cooperation with Japanese investment bank Nomura Holdings. Indonesia particularly seeks investment from Japan into Indonesian infrastructure projects through equity financing.
Read also: What is the State of Indonesian Infrastructure?
Indonesia requires IDR 4,796 trillion (approx. USD $360 billion) to finance its ambitious infrastructure development plan up to 2019. The central and regional state budgets should contribute IDR 1,978 trillion to the infrastructure program, followed by the private sector (IDR 1,751 trillion), and state-owned enterprises (IDR 1,066 trillion).
Indonesian Finance Minister Sri Mulyani Indrawati earlier said she wants to attract the interest of pension funds through the securitization of Indonesia's existing infrastructure projects. As such, pension funds would not be invited to invest in brand new projects (those that are being constructed) but only in those that already generate income. This would make the investment less risky for the investor.
Moreover, as it involves government-owned infrastructure projects, risks of default are very low. However, the rate of return in Indonesia's infrastructure investment projects is somewhat lower and therefore fund managers (who seek big short-term returns) have somewhat ignored this investment scheme so far.
Credit Ratings Indonesia:
| Credit Rating Agency | Rating | Outlook |
| Standard & Poor's | BBB- | Stable |
| Fitch Ratings | BBB- | Positive |
| Moody's Investors Service | Baa3 | Positive |
| Japan Credit Rating Agency | BBB- | Positive |
Various sources