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Infrastructure-related asset-backed securities need clear regulations
To expand the market and achieve its ultimate goal of plugging the infrastructure financing gap, more regulatory enablers are needed.
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Infrastructure race: President Joko “Jokowi” Widodo (third from right) inspects a section of a toll road construction project in Bogor, West Java, during a recent visit. (JP/Ayomi Amindoni)
T
he year 2017 is going to be an interesting one for the asset-backed securities (ABS) market in Indonesia. It will be the first year in Indonesia’s history for ABS that focus on infrastructure projects to go public. However, to expand the market and achieve its ultimate goal of plugging the infrastructure financing gap, more regulatory enablers are needed.
One of the significant bottlenecks in Indonesia’s infrastructure financing is the financing of new (green-field) projects. The projects’ bankability remains one of the reasons why it is hard to mobilize funds for them.
Due to this challenge, some infrastructure financial institutions such as PT Indonesia Infrastructure Guarantee Fund (IIGF) and PT Sarana Multi Infrastruktur (SMI) are over-capacity for funding and guaranteeing good projects.
For instance, since it was first established, only a minor portion of the many projects reviewed by IIGF could pass the bidding process and go to the construction stage.
Pushing banks to finance green-field infrastructure is also risky. Due to the fact that banks are naturally not long-term lenders, the banking sector’s non-performing loans in January 2017, for instance, were reported to have risen to more than 3 percent partly because of the contribution from infrastructure lending.
The securitization process embedded in ABS is designed to address this green-field financing issue. The process will allow project owners such as stateowned enterprises (SOEs) to sufficiently finance their construction costs by monetizing stable cash flows from their existing revenue-generating infrastructure assets.
Based on the SOE Ministry’s statement in an investment seminar last month, state-owned electricity company PLN and state-owned toll road operator Jasa Marga plan to raise Rp 10 trillion (US$750.58 million) and Rp 2 trillion, respectively, from the issuance of ABS this year.
