Indonesia is shutting off the public funding tap for state-owned companies, pushing them to turn to the markets for capital.

From toll-road operator PT Jasa Marga to electricity producer PLN, these 118 companies -- with combined sales of US$133 billion -- must embrace new sources of fundraising starting next year, State-Owned Enterprises Minister Rini Soemarno said.

Jasa Marga last week sold the country’s first rupiah-denominated global notes, called Komodo bonds, after joining PLN in offering securities backed by roads and power plants in August.

“We want to let state-owned companies be the pioneers, to do the study and give suggestions to the government on what should be changed” to access new sources of financing capital expenditure, Rini said in an interview. "We do all this so that our capital market becomes better, more liquid and more attractive to investors.”

The state-owned companies have planned Rp 616 trillion ($46 billion) of capital spending next year to build airports and dams, provide electricity and to ensure uniform fuel prices throughout the archipelago. The ministry will focus on housing development in 2018, with plans to offer mortgage-backed securities, sell more Komodo bonds, as well as shares in hospital and hotel units to the public and strategic investors, Soemarno said.

"I’m excited about diversification in the market," Ernawan Rahmat Salimsyah, who manages Rp 7.5 trillion as chief investment officer at PT Indo Premier Investment Management, said by phone in Jakarta. "I see this as being good for both investors, who get more options, and issuers, as they would need to operate and interact at a level of professionalism demanded by investors."

The capital market in Southeast Asia’s largest economy is dwarfed by its neighbors. The size of Indonesia’s local-currency bond market amounted to $180 billion in September, compared with $299 billion for Malaysia, according to the Asian Development Bank. The stock market capitalization is about $482 billion, compared with $507 billion for Thailand, an economy that’s half in size.

Shallow local funding pools constrain companies from being able to raise capital without needing to take on the risk of borrowing in foreign currencies, a conundrum that Rini bets will be solved once state-owned firms establish a Komodo bond market -- named after the big lizards found in eastern Indonesia. (bbn)

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